If he cashed in the whole value, lets say £25k, how is that taxed?
I think its liable to income tax but the original amount that was paid in by the grandparent would be deducted. In this case £7k.
I'm told that because the profits that sit in that fund will have already suffered Corp Tax, that he would only be liable for any tax if his earnings tip over and above the basic rate threshold. If thats correct then he apparently completes his self assessment as receiving the net £18k income, pays tax on it but then reclaims the overpaid tax on an R40.
or he could just cash in enough to be below the £12.5k PA so he pays no tax, and cashes in the remainder after tax year end..... hence no need to then reclaim anything as its all under the PA in both years.
What if we can't establish exactly what the approx £7k value was, as it was so many years ago and the grandparent is now deceased?
Can anyone confirm or offer other advice?
Many thanks
Replies (14)
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The £7k isn't taken into account. If he has no other income, the best way forward would be to draw a net sum that equates with a gross of £12.5k and he would receive back all the tax on the R40 issued to him through self assessment on the trust income part of the return. Then to take the balance after the tax year-end.
And has the other person has said you must establish was sort of trust this is.
I do this for my wife and brother in law, but has I don't have the trust form to file with their SA form then I have download the trust form and post it to HMRC in paper form.
I'd say step 1 was to get someone involved that knows about trusts. The taxation of trusts and payments out of trust has aspects that are unique - you won't have seen the equivalent in your day job. And it's not unlikely that the terms of the trust make the decision as to what is taxable and how for you - and it won't be a matter of splitting across year end or whatever.
Ask Aviva for a forecast of the chargeable event gain that would arise on surrender. Establish whether or not there is notional tax credit. A CEG of c £18K with a tax credit will only result in more tax if the client's income is sufficient to make the gain wholly or partly liable to HR tax.
TD's remarks about passing the case on to someone who knows about trusts seems out of place since the trustees are not your clients and the bond is no longer trust property.
The above assumes that granddad is long dead, which seems likely from what you say. My answer might be different if the death is recent.
More information has indeed changed my answer, but what makes you think the CEG isn't taxable on the trust?
The 17 lots of 5% is only relevant to partial surrenders.
Was granddad the only life assured? If so, the chargeable event would have been his death, with gain taxable upon him.
I modify TD's advice to you need to pass the case to someone who understands the chargeable event regime.