Chargeable Event ?

In message , Little Mick writes

A copy of the certificate will be sent to HMR&C anyway.

I suspect this has arisen due to an encashment (in full or in part) of a Life Company Investment Bond,

You will only have tax to pay, or need to fill in a tax form, if the amount of gain shown on the form, when divided by the number of years shown on the form, when added to your taxable income for the tax year in which the certificate applies, would take your income into the higher rate tax band.

If you take annual income in excess of 5% of the sum invested from a with-profits bond, the excess over 5% is potentially taxable - and generates a "Chargeable event" on each anniversary of the bond - which is what the notification is referring to.

However, this 'gain' is taxed at 20% for standard rate taxpayers and 40% for higher rate taxpayers. The good news is that 20% is deemed to have already been paid on it - so if you're a standard rate payer, there's no more to pay. You don't need to tell the Taxman unless you need to fill in a return for some other purpose. If you *do* fill in a return, you enter the amount of the gain and the amount of tax deemed to have been paid (as per the notification) - and you'll find that it doesn't affect the bottom line.

In message , Roger Mills writes

It is wider than that. It covers all life investment bonds, (the fund is irrelevant, not just W/Profits))

Again, it is actually a bit different to that, it is only if the cumulative withdrawals to date exceed 5% for each year since the investment was made, up to a maximum of 100%. So you could take 6% per annum starting in month 13 and it would year 7 before a chargeable event.

Unless the 'top slicing' calculation takes you into the higher rate band.

Unless top slicing takes you over.

Yes, I'm sure you're right in your expansion to cover more general cases.

However, in this specific case, the OP did mention a with-profits bond. It's not unreasonable to assume that he started drawing on it on Day 1. Unless he's got a *lot* more income which he hasn't told us about, this bond ain't going to take him into top slicing territory.

But your clarification is valid in case anyone tries to apply my previous answer to different circumstances.

and advice you have offered. You were correct Roger about the bonds. I invested in two bonds five years ago, one with Clerical Medical and another with Scottish Equitable. For the first 4 years I took an income from them of 5%. I never received notice of a chargeable event during those 4 years. I was advised one year ago by an IFA that i should increase from 5% to 7.5% because the bonds were not performing well. On reflection it would seem that the extra 2.5% has caused a chargeable event. Once again I thank you for your comments.

Little-Mick

Yes that makes sense.

As has already been said, unless the addition of the 2.5% 'gain' brings your total taxable income into the 40% bracket (I forget the exact figure, but it would to be above about 33,000 this tax year) you don't need to tell the taxman, the applicable tax already having been paid.

Not sure I understand the IFA's advice. When the bond is not performing well, the income it generates will not keep up with the 5% you were withdrawing - let alone with 7.5% - so you'll end up running the capital down at an alarming rate.

I must admit that the investment didn't perform well. IFA advised extra 2.5% be taken out and invested into a mini cash ISA which i did. I have now been advised to encash the two investments, ( which i have )and take out another. I couldn't move my money for the first 5 years due to penalties. I don't know for sure which way to go. I had considered putting the lump sum into an on-line high interest account but i am not knowledgeable enough to know which is best. It's putting trust in my IFA.

Thanks again Roger Little-Mick

In message , Roger Mills writes

Thats the idea, its a way of getting out of a crap fund as quickly as possible without incurring a penalty. 7.5% is a common maximum penalty free withdrawal in the first few years and may also avoid any applicable MVA.

Fair enough, but it doesn't get you out *that* fast!