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Sam, Accountant
Category: UK Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Capital Gains, CIS ask for Sam Tax
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Hi Sam, Here is the supplimentary information that Old Mutual

Customer Question

Hi Sam, Here is the supplimentary information that Old Mutual refered to in their answer to me.

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This communication is designed for and directed at financial advisers.
26 March 2012
UK taxation of offshore bonds Part I
Chargeable events
The aim of this article is to explain how income tax will be assessed where UK resident individuals hold an offshore
regular or single premium life assurance bond, or a capital redemption bond ('Bond') offered by Royal Skandia Life
Assurance Limited (Royal Skandia), Skandia Life Ireland Limited (SLIL) or Old Mutual International Guernsey (OMIG).
UK tax residents
Unlike most investments, any capital gain realised from a Bond is subject to income tax. The taxation of Bonds which is sometimes
known as the chargeable events regime is contained within Part 4, Chapter 9 of the UK income tax legislation (Income Tax (Trading
and Other Income) Act (ITTOIA) 2005).
There is no specific definition of UK resident for income tax, however, as a general rule, HM Revenue and Customs (HMRC) will
consider an individual is UK resident if they live in the UK for 183 days or more in any tax year.
The number of days you are in the UK is not the only factor that HMRC will take into account when deciding your residence for
tax. HMRC also have their own guidance document on Residence, Domicile and Remittance Basis HMRC 6 which is available from
their website:
Chargeable events
Taxation of Bonds occurs when a gain arises on a specific event. These events are listed below and are collectively known as
chargeable events:
• Death of the relevant life assured for a life assurance bond
• Full assignment of a Bond for consideration in ‘money or money’s worth’
• Maturity of a Bond (where applicable)
• Full surrender of a Bond (or Full surrender of policies within the Bond).
• Regular withdrawals or one off cash amounts taken from the Bond (Part surrenders) in excess of the 5% tax deferred allowance.
• Part assignment of a Bond for consideration in ‘money or money’s worth’ which are in excess of the 5% tax deferred allowance.
• Loans made to the Bond owner against a Bond issued by the life company (i.e. Royal Skandia, SLIL or OMIG) (known as 'Policy
loans') which are in excess of the 5% tax deferred allowance.
The first four events are sometimes called Final Events as the Bond must come to an end or the ownership of the Bond must change
for this event to be considered a chargeable event. The remaining three events are all periodic calculations which are assessed at
the end of each bond year and relate to gains in excess of the 5% tax deferred allowance. They are sometimes known therefore as
excess events.
Final event calculation
The formula for the calculation is the same for each final event*:
Image: final event
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* Royal Skandia, SLIL and OMIG do not calculate the chargeable gain on full assignments. They are only required to report the
details of the assignment and the premium and withdrawal history and the commencement date of the Bond. The Bond owner must
calculate and declare the gain in their tax assessment.
If there is no chargeable gain, then there is no income tax payable. If there is a negative result (or chargeable loss), this may be used
to offset your higher rate income tax liability in certain circumstances. See articles on deficiency relief for more information.
**For policies issued on or after 21 March 2012, any previous excess gain in the final event calculation, where those excess gains
have not been charged to UK income tax (for example, the policyholder was not UK resident at the time the excess events occurred)
will be ignored for the purpose of calculating the chargeable gain.
This change will only affect policies which started before 21 March 2012, if after 20 March 2012, the policy:
is assigned in whole or part, or
used as security for a debt, or
has further premiums paid to the policy.
Insurers will still calculate the gain (or loss) including all previous excess gains for the purpose of reporting chargeable gains to the
policyholder and HMRC, but when the policyholder comes to complete their self assessment form, they will need to increase the gain
(or reduce the loss) by any excess gains made while they were non-UK resident.
Chargeable gain on Chargeable Event
+ Previous excess gains where UK income
tax has not been paid
= Gain to be included in self assessment
Death of the relevant life assured for a life assurance bond
The event date is the date of death of the relevant life assured. The relevant life assured is the life assured where there is only one
life assured. Where there is more than one life assured, the relevant life assured is the
Submitted: 3 years ago.
Category: UK Tax
Expert:  Sam replied 3 years ago.



I have just answered a question, which advised that income tax would be due on the fund, this other questions, advises this will be treated as a chargeable gain (which is capital gains) Are these different policies/funds ??




Customer: replied 3 years ago.

No, its the same fund

Expert:  Sam replied 3 years ago.



Then how come the first question you posted states that the proceeds will be subject to income tax - see link here


and this ones states capital gains?

It will not be subject to both.




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