taxation with respect to bonds

Hi

I am completing a tax return for my mother and would appreciate some advice regarding taxation with respect to bonds.

My mothers (65yrs) basic income from state/private pensions & interest on savings is around 24k gross (basis rate tax payer with tax deducted by her main pension provider and at source on savings). She also had a 50k with-profits bond, which she took-out 31/03/99, from which she received a small income (less than 5%) of the bond.

During tax year 04/05, with the bond performing relatively poorly, she made a partial withdraw of 25k from the bond (at that time no mva was applicable on a partial withdrawal up to 25k).

Following the 25k withdrawal, my mother received a 'Chargeable Events Certificate - Partial Surrender' from the bond provider. I am using this information to fill-in the tax return form. The main info the certificate provides is (a) Last relevant date - 30/03/2003, (b) Number of complete years since last relevant date - 2yrs (c) Amount of gain arising on this event 23,555 & (d) Notional tax 4,712.

I am intending to add this to the tax return form boxes 12.3 [2], 12.4 [4,712] & 12.5 [23,555].

Please could someone confirm that my mother will not incur any further tax liability, due to this partial cash-in of the bond?

Many thanks

Reply to
jools
Loading thread data ...

For 2004-05, 40% income tax starts at 36,145 (31,400 + 4745).

With Top Slicing Relief, your mother seems to have avoided the additional

20% tax.
Reply to
Doug Ramage

Thanks for that Doug

I am also puzzled by the amount of gain arising ie 23,555 - how would this be calculated?

Initial investment 50k (03/99) Income received 03/99 to 03/05 - 17,691 Value of bond at time of 25k withdrawal (partial return of capital) = 44k ie. Due to poor bond performance income being consequently partly taken from invested capital! Approx 19k remaining in bond after 25k withdrawal.

Also, at what stage in the tax equation does the initial 50k investment get taken-out?

Thanks

Reply to
jools

What happened on 30/3/03? It seems to have been an earlier Chargeable Event?

Did you mother make a (Excess) Partial Withdrawal on that date?

Reply to
Doug Ramage

Sorry for the delay in responding, but I had to drive to my mothers to pick-up the previous certificate.

Chargeable Event Certificate dated 30/03/2003 (last relevant date) which has the following info on it:

Last relevant date 30/03/02

Total of all relevant capital payments (partial surrender payments) since last relevant date 3581

Total of all relevant capital payments (partial surrender), including the above, since commencement 14,024

Total premiums paid (single premium) 3103/99 - 51,151

Previous certified gains 2771

Amount of gain arising on this event 1,023

Number of complete years since last relevant date 1

Notional Tax 226

Also, having re-looked at the monthly income received by my mother from the bond, I realise that I was wrong to say that the monthly income taken was less than 5%. It would appear that for years 99/00 to 02/03 the income was actually 7%

Thanks for taking an interest

Reply to
jools

It is a bit confusing.

What happened in 2003-04, as there does not seem to have been a withdrawal on 30/3/2004?

Did she take her 7% withdrawal (3581) as well as the 25,000 in 2004-05 (30/3/05).

Reply to
Doug Ramage

Year 03/04 2,541, income reduced due to bond performing poorly and eating into capital investment. No other withdrawal during 03/04 Year 04/05 1,128, income reduced to reflect withdrawal of the 25k during

04/05. Regards
Reply to
jools

Ah, that's the missing data. :)

Gain of 23, 555 (with roundings) is calculated as under:

Withdrawals since 30/03/03= 28,669 (25,000 + 2541 + 1128).

Less : Allowances of 5151 ( 2 x 5% x 51,151.

Gain = 23,554 (+ rounding difference, I suspect).

Reply to
Doug Ramage

You're a star - many thanks for your help, its very much appreciated. Kind regards

Reply to
jools

You're welcome.

Reply to
Doug Ramage

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.