£25 Actuarial Report values a defined benefit scheme. It takes only 10 minutes online and gives you a 5-page report signed off by an accreted actuary click here
Pension values 30% greater than the CETV.
On divorce find out if the provider quote values the pensions fairly. Start here by comparing some valuation examples
Endowment
policy
Qualifying
policy
The most frequent reason for using a qualifying
life assurance policies is for investment purposes.
Investment will be over a specified period of time
and purpose, such as school fee planning, or to
repay a mortgage linked to a property
where investment and protection is required for
the this joint life policy.
Another advantage for
choosing a qualifying policy is the tax treatment
as if affects the policyholders funds. The underlying
assets are taxed at a rate of 20% on savings income,
capital gains tax (CGT) and non-savings income are
taxed at 22% and dividends are received net.
Furthermore the company's expenses can be offset
against unfranked investment income, called the
I-E formula, and this means that often there is
little or no tax to pay on the policyholders funds.
Qualifying policies can therefore be tax advantageous,
although not to the degree of individual savings
accounts (ISA),
for higher rate taxpayers as there is no tax liability
at maturity. Qualification will depend on the following:
•
The plan must have a term of
at least 10 years;
•
The minimum life assurance
cover must be 75% of the total premiums payable
throughout the term.
If the policy is surrendered within the first 10
years or 75% of the term if sooner, there the gain
could be liable to income tax as this is a chargeable
gain. There will only be a chargeable gain if the
surrender value exceeds the total premiums paid
and then only if the policyholder is a higher rate
taxpayer after the top-sliced gain is added to the
income. The gain will attract a charge of 18%, this
being the difference between higher rate and basic
rate tax.
On divorce,
nullity of marriage and judicial
separation it is likely that where there is
an endowment policy in joint names, the parties
will want the policy assigned to one of the spouses.
As long as the policy has run for 10 years or 75%
of the term if sooner, there will be no chargeable
event and no tax liability.
If the assignment is within 10 years or 75% of the
term, there may be a tax liability if the top-sliced
gain for each party's share of the policy when added
to their individual income exceeds the higher rate
tax threshold.
TEP market
Rather than assign the endowment policy to the other
spouse as a result of ancillary
relief proceedings, the parties may decide to
encash the policy. This can be achieved by surrendering,
or selling the policy on the traded endowment policy
(TEP) market.
The advantage of the TEP market is that for any
with-profits policy, a buyer will usually pay a
higher value for the policy than the value received
on surrender from the provider. Therefore the parties
should seek advice from an independent
financial adviser (IFA) before encashing the
endowment policy.
The advantage to the buyer of a with-profits policy
is that the eventual yield on maturity can be much
higher than that produced from an interest bearing
security, although the buyer will have to be prepared
to pay the premiums to maturity. There may also
be a windfall for the buyer if the original owner,
that will still be the life assured, dies before
the policy matures as this money is payable to the
buyer.
On maturity the TEP, as a non-qualifying life assurance
policy is subject to income tax. There will be a
chargeable gain if the disposal value exceeds the
premiums paid by both the buyer and the original
owner. The price paid by the buyer for the policy
is not considered for the calculation of income
tax. Instead it will be the top-sliced gain added
to the buyers income and only if this is higher
than the higher rate tax threshold will there be
a chargeable gain subject to tax.
There may also be a CGT liability on disposal and
this is calculated in the normal way by deducting
from the disposal proceeds the price paid, expenses,
only the premiums the buyer has paid as well as
indexation relief, taper relief and the personal
CGT allowance. This gain will then be further reduced
by deducting the amount of chargeable gain subject
to income tax.
Disclaimer:
Information found on this site does not amount to financial advice or
legal advice. Every time you access the website you agree to be bound
by the Terms and Conditions.
If you do not agree to be bound by them, you should not use the sharingpensions.co.uk
website. Before taking any action regarding pensions, pension on divorce
or any other financial or legal matter you should seek professional
advice.
