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Chargeable events for an investment bond are triggered when one of the following events occur:
- Full and final encashment of the investment bond.
- Withdrawals in excess of the 5% per annum cumulative allowance.
- Withdrawals after the 5% per annum allowance has been used for 20 years. If an investmentbond has been paying a 5% per annum income for 20 years, HMRC deem this to be a return of the investor’s original capital and any additional withdrawals would be considered chargeable events each time they are made. In this instance, all of the 5% withdrawal after the 20 year term is added to the income of the bondholder and taxed at their highest marginal rate of income tax. Had the bondholder been receiving income of 4% per annum, they would be allowed to utilise all carried forward allowance, in this case meaning they could continue their withdrawals of 4% per annum for 25 years.
- Assignment, or partassignment,of the bond for money or money’s worth. This would not include assignment between cohabiting spouses or civil partners orassignment by way of security for a loan.
- Death of the life assured, or in the case of a jointly held investment bond, on second death of the last life assured. Please note some investment bond providers allow you to add multiple lives assured – in one case up to a maximum of nine.
- Maturity of the bond. This is only relevant to a type of investment bond called a Capital Redemption Bond which has a fixed term from outset.
- Policy loans if the investment bond started after 26th March 1974.
- A fundamental change to the basis of the bond. For example, if one or more of the lives assured was changed.
Taxation of a chargeable gain
In the event of a chargeable gain on an onshore investment bond, the gain is added to the investor’s income in the tax year when the chargeable event occurred and only if some or all of this gain falls into the higher rate tax bracket is a tax charge triggered. If, after adding the gain, the investor remains a basic rate taxpayer, there is no tax to pay even though a chargeable event has occurred. Oncea chargeablegainhas beencalculated, it can be reduced by applying “top slicing”. For more onthis, refer to our section ontop slicing relief.
This differs for the calculation of a chargeable gain for an offshore investment bond, since the underlying assets are not deemed to have been subject to basic rate tax. Hence no credit is given for tax already paid since the funds held within an offshore investment bond have been rolling up with no tax being paid other than a tax on some of the dividend income, which is called “withholding tax”.
FAQs
How should the chargeable event certificate be dealt with? Basic rate tax has been paid on the chargeable gain and therefore, if an individual was a basic rate taxpayer or did not pay tax, no further action is required when a chargeable event certificate is received.
What triggers a chargeable event? ›
A Chargeable Event can arise upon:
Death of a life assured that gives rise to the death benefit becoming payable. Maturity of a plan. Surrender of the plan in full or of individual plan segments.
What is an example of a chargeable gain? ›
Chargeable gains example
As an example, let's suppose you acquired a stock for £7000 five years ago. In the time since you bought it, it has appreciated in value and is now worth £10,000. In this case, the asset has received a chargeable gain.
How do you calculate chargeable? ›
How do you calculate chargeable weight? The formula for the chargeable weight or volume weight is: (length x height x width) / divisor = volume weight in kg. Notes: Lengths are measured in cm.
Who pays the tax on chargeable event gains? ›
The individual or trustee who is liable for tax under the chargeable event regime is treated as having paid tax at the basic rate on the amount of the gain. This reflects the fact that the funds underlying a UK policy are subject to UK life fund taxation.
How to calculate life insurance payout? ›
The payout is calculated by dividing the death benefit by the number of years chosen. The beneficiary will also choose their own beneficiary(ies) to receive any remaining payments if they were to pass away before the time period ends.
Is assignment a chargeable event? ›
There is no immediate income tax obligation because an assignment is not considered a chargeable event and therefore is not subject to income tax. However, this relies on completing the assignment without payment or any other form of money changing hands.
What is a chargeable event in a qualifying policy? ›
A surrender, assignment for money or money's worth or excess event will be a chargeable event if it occurs before the policy becomes time-served. A part surrender or assignment event will be a chargeable event if the insurance year in which the event occurs ends before the policy becomes time-served.
What does chargeable mean in tax? ›
If something is chargeable, you have to pay tax on it: chargeable earnings/income. earnings/income chargeable to tax. SMART Vocabulary: related words and phrases. Paying money.
Do you pay tax on bond withdrawal? ›
Like many other investments, your bond could be subject to tax if you make a gain on a withdrawal. We want to make sure you get the most from your bond. We've put this guide together to help you save tax when you're making a withdrawal. What is a chargeable gain?
Chargeable gains on disposals of residential property that do not qualify for, or are not fully covered by, main residence relief are subject to the 18% or 24% rate. In 2023/24, the higher rate of CGT for residential property disposals was 28%.
What counts as a chargeable asset? ›
any form of property created by the person disposing of it, or otherwise coming to be owned without being acquired.
What is chargeable event gain in corporation tax? ›
Chargeable event gains are treated as forming part of the Case 6 of Schedule D income of companies where the policy or contract is made on or after 14 March 1989 or, if made before, is varied on or after that date to increase the benefits or extend its term.
Is a chargeable event gain savings income? ›
Chargeable gains on bonds are categorised as 'savings' in the tax calculations, so if a client qualifies for the starting rate for savings, they could potentially make a chargeable gain on an offshore bond to the tune of £17,570 (depending on their total taxable income) without having to pay any tax on the gain at all.
What is a chargeable asset? ›
noun. any asset that can give rise to assessment for capital gains tax on its disposal. Exempt assets include principal private residences, cars, investments held in a personal equity plan, and government securities.
