In a draft legislation, published as part of the UK’s Spring Budget on Wednesday, HM Revenue and Customs (HMRC) confirmed that any taxpayer who receives a hefty tax bill as a result of a wrongful or mistaken part surrender or part assignment of a life policy can appeal the outcome.
This must be done in writing and must be within two years of the event.
“Following consultation, the legislation has been revised to clarify who can apply, when and how the recalculation is given effect. These changes will have effect from Royal Assent of Finance Bill 2017,” said HMRC.
The tax office has confirmed that the facility will not be available from 6 April 2017 as originally proposed, but will be from later in the year, whenever Royal Assent is granted.
Offshore bond withdrawals
Currently, using part surrender, policyholders of offshore bonds can take out 5% of the money they have invested tax free every year over the lifetime of the bond, or with part assignment they can sell up to 5% of the policy every year, again tax free.
However, in some cases, taking more than 5% in part surrender can result in a significant tax bill for a policyholders, although HMRC predicted that this only applies to 600 UK policyholders.
‘Not enough detail’
Gordon Andrews, personal financial planning expert at Old Mutual Wealth, said while he welcomes the confirmation that tax payers can appeal the outcome of “a chargeable event where the gain is wholly disproportionate”, he warned that the legislation doesn’t provide enough detail.
“The number of customers taking withdrawals from bonds in the wrong way is minimal and so the government needs to be clear how the process will work and what the indicators are to determine if a gain is wholly disproportionate, or not.
Andrews added that it’s likely “HMRC will have discretion on whether or not to accept [an appeal] and therefore this is a safety net and not something people should rely on”.
“Guidance will be key to helping advisers understand the calculation basis HMRC is proposing and when they can apply,” he said.
Delayed implementation
Neil Jones, technical manager at Canada Life, said: “Following an announcement on 8 March 2017 by HMRC, the ability to appeal the tax due on any disproportionate gains from investment bonds and have these recalculated, has been postponed.
“The original proposal was for this facility to be available from 6 April 2017 however, HMRC have now confirmed that it will be available when the Finance Act 2017 receives Royal Assent, which will be later in the year. The announcement also confirmed that the legislation will be revised to clarify who can apply, when they can do it and how the recalculation is given.”
He added that “like advisers and other providers, we are looking for guidance from HMRC on how this will work in practice”.
