Uk Life Assurance Policies Flashcards
Describe a qualifying life policy
Regular level premiums
Payable at least annually
Term is at lest 10 yrs
3,600 limit on policies after 5 April 2013
Describe a non qualifying policy
These are single premium arranged as an investment and are potentially liable to inc tax on payout
How is the life company taxed
Uk div inc is exempt from tax
Interest, offshore income gains and property rental inc taxed as 20%
Where assets sold at a profit the fund pays 20% tax
What is the tax on the policy holder
Pay inc tax as savings inc on policy profits
Only when policy surrendered or made paid in the first 10yrs are taxable for qualifying policy. For non quali, all gains are taxable
Free of tax when paid on death, after 10yrs or 3/4 of the their term, whichever is earlier
What are the chargeable events for a non quali policy
Maturity Surrender Death if it gives rise to benefit Part surrender Policy loan Assignment of money or moneys worth
When will there be a chargeable gain on death
Where the surrender val immediately before death plus any relevant capital payments exceed the premiums paid plus the total gains on previous chargeable events
When is there a chargeable event of maturity or surrender
Where the policy proceeds plus the relevant capital payments exceed the premiums paid plus the total gains on the previous chargeable events
When is there a chargeable event on assignment
Where the policy received plus any relevant capital payments exceed the premiums paid plus the total gains on previous chargeable events
Explain the 5% rule on uk life assurance policies
Allowance of 5% allowed of the original premium paid
Can be taken annually
Any unused 5% can be carried forward
5% Taken is tax deferred
chargeable event is when it’s over 5% and subject to inc tax
5% can be taken out for a max of 20yrs
C’hargeable events take place at the end of each policy year
Advisor chargers are taken from the policy so count towards the 5%
Can personal savings allowance be used when calculating tax on a gain
Yes it can as the gain is regarded as savings income
If a policy holder was not in the uk for a specified amount of time can the gain be time apportioned?
Yes it can as if they were res outside the uk for that time, the gain in that period will be deducted
How is a gain taxed on uk life assurance policies?
step 1
Dived the gain by the umber of complete years from policy issue to date of chargeable event(top slicing)
Onshore policy is number of full years to last chargeable event
Offshore is from start of policy
Step 2
Add the top slice gain to the total inc of the person and calc tax liability (1)
If all top-slice falls in br band no tax to pay, if above these then tax payable at marginal rate
Calculate tax liability without top slice (2)
Deduct 2 from 1 (3)
Debut tax at 20% for uk policies from 3, to give the br rate liability (4)
Multiply 4 by the number of years used for top slicing
How can a person save tax on a gain?
They can do so by assigning the policy to their partner who pays no of little tax and this assignment has to be outright and unconditional
If a gain arises the life office must?
Issue a certificate to the policy holder that shows this to help them in completing their self assessment
Hmrc only get a copy when the gain is 17,250 k or more
Friendly society life policies are?
Underlying life policy funds are free of uk tax on investment and gains
Limit of annual amount of 270
Or monthly amounts of 25 (300)
No tax charge if policy held for 10yrs or more and if chargeable gain was made then no credit for br tax given
What is an annuity?
This is a contract where a lump sum is paid in return to receive a given amount at an agreed frequency whilst the person doing so, is still alive
What is the tax treatment of a purchased life annuity
Taxed part as savings inc and part tax free
What is tax treatment of a purchased annuities certain
Taxed part as savings inc and part tax free
What is the tax treatment of pension annuities
Taxed in full as pension income
What is the tax treatment of deferred annuities
When income payments commence taxed part as savings income and part tax free
What is the tax treatment of annuities for bens under trust or will
Taxed as savings income
Can annuities be paid in settlement for damages and are they deducted if tax?
Yes they can and no they are not deducted of tax and also not deducted of tax when the person gets it
As annuity dependant on human life can be treated as a purchased life annuities (PLA) when can this not be the case?
Purchased in connection with a personal pension annuity
Already treated as part capita; and part interest
Purchased following instructions in a will or by virtue of a will or settlement
PLA is divided in to how many elements and what are they?
2 elements are are as follows
Capital element paid tax free
Interest element taxable as savings income with tax decucted at 20%
Describe the capital element of a PLA
Fixed from outset
Remains constant
Done by dividing the purchase price by the number of years the person is expected to live
If the person who has a PLA survives the expected number of years what would happen?
They will have received back the entire purchase price tax free
Income form the interest element will be paid net of 20% and depending on the persons tax status further tax may be payable under inc tax
How are purchased annuities certain paid?
Paid for a given term wether the person is a live or not
PLA treatment is not avail
Have capital and interest element(net 20%)
If transferred to someone else then the tax free elect is lost
How is the tax on annuities administered
Life office has to deduct the bd=r tax before paying the annuitant
Provide certificate showing this
Pay hmrc the 20%
When does hmrc allow annuities to be paid gross?
When the amount is really small and to receive it gross the annuitant must use a form r89
