Bond Surrenders and Spousal Exemptions

Hi all,

Les made a point yesterday at the big day out about assigning bonds to a spouse to reduce the tax, to then have the spouse give the money back using the spousal exemption. I missed the gist of the conversation, but from what I could gather, it could be challenged by the revenue for some kind of anti-avoidance rule?

I have a case as follows, and the adviser has outlined a recommendation, but I need to check my understanding of whether we can do it or if we doing something we shouldn't be:

1) Joint onshore bond (life insurance based) - value around £58,000 - original premium £45,000 in around 2010
2) Mr and Mrs are joint policyholders and both are lives assured
3) Mr is a higher rate tax payer and Mrs is a nil rate taxpayer
4) Recommendation is to assign the bond fully into Mrs name and then fully surrender, thus paying no tax
5) Using £40,000 to fund both their ISAs and the residual split into individual GIAs

Given the fact he will essentially be benefitting from the £20,000+£9,000 back into accounts in his own name, is this the no-go area which HMRC are concerned about? Or is this practice perfectly fine between spouses?

Hopefully Les (or anyone else for that matter) will be along to clear this up for me?

Many thanks


  • Hi,

    The issue I think is less with the tax on the surrender and more with the IHT consequences of the gifts. Effectively, in your situation, the gift from one spouse to the other wouldn't be exempt as it is conditional on them being given the money.

    That said, I believe the avoidance of tax the bond gain is equally open to attack as an artificial dodge for largely the same reasons. I certainly assume that when I'm dealing with this situation.

    Benjamin Fabi 
  • edited September 2023

    In this particular case, there is no IHT issue, we are merely looking at the avoidance of the tax that would be due on the chargeable event gain which would be taxable on him if it remains joint.

  • Hello

    For an assignment to have no tax consequences it must be outright and unconditional.

    If you still effectively have access to that money then I believe it is caught by what's called the settlements legislation so the person that made the "gift" should remain taxable.

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