endowments - taxable?

when the endowment policy matures, the target is normally intended to pay off outstanding mortgage

but if the mortage was already paid off by the time the policy matures - is the target money (the end sum) taxable?

if so - what defines the difference between the two

Reply to
JethroUK
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No. The paying off of a loan is not an action deserving of tax relief, and the intention of what to do with the expected lump sum is not what gets you the tax relief. What gets you the relief is (and it's not immediately obvious why this should be) the fact that it's basically a life insurance policy.

If you terminate the policy early enough, some or all of the tax relief is cancelled.

Reply to
Ronald Raygun

With a life policy the fund in which the premiums are invested is taxed to some extent by the Revenue at a rate which is slightly less than the basic rate, i.e. the insurance company pays tax to the Revenue. Because of this tax the Revenue deems the proceeds to be free of basic rate tax (otherwise you'd be taxed twice). But you may be liable for higher rate tax (40 - 22 18%) if the proceeds push you into the higher rate band - unless the policy is a qualifying policy.

Life policy taxation is complicated. Just don't think about it. Just accept that in most circumstances there is no tax on the payout.

Rob Graham

Reply to
Rob graham

In message , JethroUK© writes

No. The existence or otherwise of the loan is irrelevant.

Endowments are generally 'qualifying' life policies and if you keep them to maturity and dont change them in such a way as to make them 'non-qualifying' then the proceeds are paid out free of tax to the beneficiaries. This does not mean they are 'tax free'; because the LifeCo pays tax on an ongoing basis on the investment but at a rate that is generally lower than what the beneficiary would have paid if they had made the same investments themselves.

Reply to
john boyle

What is the situation when an endowment policy is surrendered. I seem to recall something about the proceeds being taxable unless the policy was at least 3/4 of the way to maturity. I may be wrong but would be grateful if someone could confirm (as you can guess, I am considering surrendering a policy!)

Regards, Ian

Reply to
Ian

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