Top five chargeable queries of 2017
By Kirsten Hastings, 15 Dec 17
One of the most common topics prompting advisers to reach out to life companies for support was around chargeable events. With a myriad of changes in recent years, it is little wonder that the already complicated topic has many UK advisers scratching their heads. Canada Life has put together a list of the five most common chargeable event queries advisers asked in 2017.
The second most frequent adviser query was around the 5% allowance and top-ups.
Calculating the tax-deferred allowance can be difficult when there have been top-ups.
Each year, 5% of the premium paid in that year plus 5% of any premium paid in any previous year can be withdrawn without an immediate liability to income tax. This is known as the ‘tax-deferred withdrawal’ facility. Any allowance not used can be carried forward to future years.
As well as the 5% allowance there is an overall maximum limit. Once 100% of the cumulative allowance has been used then any further withdrawals, regardless of the amount, are considered a chargeable event.
For example, consider a bond commenced on 1 January 2010 with a premium of £100,000. Top-ups were applied on 3 March 2015 (£50,000) and 2 February 2016 (£100,000).In September 2017, the client wants to withdraw all the tax-deferred allowance, having previously made no withdrawals.
The client will have a cumulative tax-deferred allowance of £57,500 (£100,000 x 5% x 8 years + £50,000 x 5% x 3 years + £100,000 x 5% x 2 years).
Remember that, going forward, the client will only have 12 years’ tax-deferred allowance left on the original amount and so on for the top-ups.
Tags: Canada Life
