 |
|
|
|
Tax |
|
| |
The money you receive from your
Bond is paid from funds that are liable to corporation tax
at the special rate applicable to life assurance policyholders'
funds. To compensate you for this
you are given a 20% income tax credit for any chargeable gains
arising on the Policy. If you are a basic rate taxpayer you will
have no further tax to pay. Lower rate and non taxpayers cannot
reclaim any tax that has been paid by Countrywide Assured. |
|
|
|
|
|
Liabilities
for Tax at the Higher Rate |
|
| |
As money invested with Countrywide
Assured has already been subjected to tax, you can only incur a
potential income tax liability at the higher rate in respect of policy
gains. Therefore, if you already pay
higher rate tax,or if the chargeable gain (see below) puts your total
income above the higher rate tax
threshold, you may incur a tax liability on the money you receive
from your Bond. |
|
|
|
|
|
Income Payments |
|
|
You are allowed
to receive in each Policy year, for a maximum of 20 years, 5% of
the
value of
your investment without incurring an immediate liability to tax. Any
amount you receive over this 5%
will be classed as a chargeable gain and added to your income. This
does not happen until the end of the
Policy year in which you receive the money from your Bond. If the
full 5% is not withdrawn from your
Bond, the unused allowance can be carried forward to the next year. |
|
|
|
|
|
Maturity |
|
|
When your Bond matures, a final chargeable
gain calculation is carried out. This calculation is different to
that for income payments. The amount you receive at maturity and any
previous income payments are
added together. From this is subtracted the amount you invested and
any chargeable gains that have
occurred at the time of previous income payments. The resulting figure
is the final chargeable gain
which will be added to your income. |
|
|
|
|
|
|
|
|
|
|
|
Chargeable Gain |
|
|
When money is withdrawn
from a Bond, Countrywide Assured will check, as described above,
whether
there is a chargeable gain. If there is a chargeable gain, Countrywide
Assured are required to issue a
chargeable event certificate to you. This certificate will show
details of the money you have invested in,
and received from your Bond, as well as the amount of any chargeable
gain.
|
|
|
|
|
|
Any chargeable gain should be entered
on your tax return form under the heading “Savings and
Investments ”. You should clearly state that the payment is
from encashment or maturity of your
Bond. DO NOT REFER TO PAYMENT OF INCOME. Income Bond payments are
not classed as
income for tax purposes. |
|
|
|
|
|
Top Slicing |
|
|
If you are a higher rate tax payer
you will pay tax on the whole chargeable gain. However, if you are
a basic
rate tax payer, where the gain makes you a higher rate tax payer
then,
“Top Slicing” may reduce or even
eliminate any potential tax liability as a result of a chargeable
gain. “Top Slicing” is HM Revenue & Customs way
of recognising that any chargeable gain may have arisen as a result
of money being invested over a number of years. The calculation for
each individual is complex and only HM Revenue & Customs have all
information
to assess the final tax liability. The example below may help you
to understand chargeable gains and how top slicing can help. |
|
|
|
|
|
 |
|
|
|
|
|
Example |
|
|
|
|
|
A Guaranteed Growth
Bond with an initial investment of £10,000 was taken out over
a term of
3 years. The Bond matured with a guaranteed
maturity value of £14,500.
In the tax year of maturity, the Policyholder
had other taxable income of £30,400.
The marginal rate of tax at Maturity is 20%. |
|
|
|
|
|
| On
Maturity there will be Chargeable Gain of: |
| (Maturity
Value + Any Income Payments) - (Initial Investment + Gain
On Any Income Payments) |
|
| (£14,500
+ 0) - (£10,000 + 0) |
| Chargeable
Gain = £4,500 |
| |
| Without
Top Slicing, the Tax Liability Will be
20% of the following: |
| (Taxable
income + Chargeable gain) - Higher Rate Tax Threshold (say
£31,400) |
|
(£30,400
+ £4,500) - £31,400 = £3,500 |
|
Tax
Liability = 20% of £3,500 |
| Tax
Liability = £700 |
| |
| Using
Top Slicing, the Tax Liability will be calculated as follows: |
| Chargeable
Gain = £4,500 |
|
| Chargeable
Gain has arisen over three years, therefore the chargeable
gain per year = £1,500 |
|
| Tax
liability per year will be 20% of: |
| (Taxable
income + Chargeable gain per year) - Higher Rate Tax Threshold |
|
| (£30,400
+ £1,500) - £31,400 = £500 |
|
| Tax
liability per year = 20% of £500 = £100 |
|
| Total
tax liability = £100 x 3 years |
| Total
tax liability = £300 |
|
|
|
|
|
|
This example has only been shown to
illustrate the possible effects of top slicing. It is not intended
to
give any indication as to the likely maturity value of a guaranteed
bond, or of your own tax liability.
Top slicing will have no effect for Policyholders whose taxable income
means they are already higher
rate taxpayers. |
|
|
|
|
|
The information above reflects our
understanding of current legislation and tax regulations which are
both subject to change. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Countrywide
Assured Investment Services is a trading name of Countrywide Assured
plc,
which is authorised and regulated by the Financial Services Authority. |
|
|
|
|
