Partial and Full bond surrenders
smith
Member
Hi all,
I think the answer is B, but....
Client has a bond which was taken out in the 80s. the full value of the initial investment has now been withdrawn and there are ongoing withdrawals, which are now all gain.
The bond year starts in Jan, so there will be 8 withdrawals gone before the surrender takes place. £2800 total.
Income, including full gains for whatever we are surrendering, comes to £98,225.
For the purposes of the tax calc for tripping over the £100k threshold, do we;
A - include the partial surrender of £2800 - takes the total above £100k
B - ignore the partial as the full surrender takes place in the same tax year - remains under £100k
Thank you!
Comments
The calculation is
(proceeds + withdrawals) - (amount/s invested + previous gain/s)
The withdrawals component will include the £2,800, because it has been withdrawn. You can't ignore the withdrawal in the calculation. What changes is whether the £2,800 is also included as a previous gain.
In your example, the £2,800 partial surrender would normally create a chargeable gain at the end of the policy year in January 2026. That won't happen this time, as you're surrendering the entire bond before the anniversary.
Therefore, the previous gains component won't include the current policy year's £2,800 withdrawal and the total chargeable gain will include this £2,800.
If you are using a provider's gain calculator, it may be simpler to omit the current year partial withdrawals and instead add the total of these (i.e. £2,800) to the figure you're entering as the current value (although I suspect that are sophisticated enough to pick this up in the background).
Cheers @benjaminfabi