Tax on annuity

"Matti Lamprhey" wrote

Only partly.

The annuity amount will be split into "capital content" and "interest content" - the capital content should be tax-free with tax potentially payable on the rest.

Yes, but only on the element of the payment which represents interest. Not the element which represents return of capital. So the tax will be lower than for a pension annuity.

Thanks to Tim and yourself. And how is that interest element calculated? Would it be proportionately lower (or perhaps higher?) for a person with a limited expected life?

Matti

There are tables approved by the IR which list the Capital Content of each annuity.

"Matti Lamprhey" wrote

No problem.

"Matti Lamprhey" wrote

That's the easy one ;-) it is "the total, less the capital content".

Want to know how the capital content is calculated? Oh, OK then :-

It's laid down in the relevant regulations - basically uses the "expectation of life" (an annuity calculation at a zero interest rate) on a particular standard mortality table. Last time I looked at these, they used a mortality table called a(55) - which is now well out-of-date, so it wouldn't surprise me if they have updated the table to be used.

"Matti Lamprhey" wrote

Now there's a good question!

I don't think it used to change - although it just might now! In theory, someone with a limited expected life could have a higher annuity amount and also a higher proportional capital content - although I don't know if the regulations allow for this...