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international premier portfolio technical guide

Taxation of UK tax resident and UK domiciled individual bondholders

  • Any gain will normally be chargeable to income tax at the rate(s) that apply in the tax year during which the gain arises and will be taxed at the bondholder’s marginal rate of tax.

  • If the bondholder becomes a higher rate taxpayer as a result of adding the gain to his other income, the liability may be reduced by claiming top slicing relief from HM Revenue & Customs.

  • Any gain can be reduced for the time the bondholder may have been resident outside the United Kingdom. It should be noted that any gain amount might affect eligibility for age allowance and other income related allowances, such as child tax credit. Benefits from the bond will normally be exempt from capital gains tax.

  • On death of the last life assured, the cash in value of any bond not held subject to a suitable trust would form part of the bondholder’s taxable estate for inheritance tax purposes.

Taxation of trustee bondholders

  • The circumstances under which trustees may be liable to tax will depend on a number of factors.

  • If a gain arises whilst the creator of the trust (the settlor) is still alive and resident in the UK for income tax purposes, then the settlor will be liable to income tax on the gain amount at his marginal rate of tax.

  • If the settlor is not UK resident or the gain arises in a tax year after the one in which the settlor has died, the UK resident trustees will be liable to pay tax on the gain.

  • If the trustees are not UK resident and the settlor is also not UK resident or has died in the previous tax year, a liability to tax may fall on any UK ordinarily resident beneficiaries to the extent that they receive benefits from the trust.

  • If a gain arises at any time under a bond, which is subject to a bare trust for an adult UK resident beneficiary, the gain will be assessed on the beneficiary under current HM Revenue & Customs practice. The amount of tax payable will depend upon the circumstances of the person liable to pay the tax and, unlike the situation for non-trust policies, the gain can’t be reduced to reflect periods of residency outside the UK.

  • The proceeds of the bond will normally be exempt from capital gains tax.

  • The death of the settlor may give rise to a liability to inheritance tax.

  • It is important to seek professional advice before making any investment to ensure all the various options and their implications are fully understood.

Taxation of UK resident charity bondholders

  • Life insurance policies such as International Premier Portfolio are not defined as ‘qualifying investments’for registered charities. This means that in the majority of circumstances, the bond will not be an appropriate investment for a charity.

  • It is important to seek professional advice before making any investment to ensure all the various options and their implications are fully understood.

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