Endowment tax & compensation

Jul 14, 2003 2 Replies
T

I'm trying to find out the tax situation on cashing in a unit-linked endowment early (under ten years) and taking the compensation offered by the endowmnent company. The compensation letter mentioned a potential tax liability, but was less than clear. I'm going to phone the company, but wanted to get some advice before-hand (on the assumption they might get the tax sitaution wrong). I've tried the IR web site, but failed to find the relevant documents. Does anyone know any pointers to web sites with useful information on this?



Thom


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R

If a qualifying endowment policy is encashed before threequarters of its term or ten years, whichever is shorter, the proceeds (i.e. the gain, not the whole sum) are liable for taxation. The tax is only at higher rate (40% - 22% = 18%) if applicable, and although you may not be a higher rate payer at the moment, encashment may push you there. The calculation is complicated. If it's not a qualifying policy then it's liable for taxation anyway. I suspect your policy is qualifying, but do some sums before you act. Life policy taxation is a subject in itself.

Rob Graham

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