Is this income for the purposes of tax or not?

[GetOffTheRoof]

DH took out a product in 1999 called, I kid you not, a Regular Savings Plan Endowment Life Insurance Investment. With Scottish Widow.

It involves paying a small premium every month, and the maturity date is in November 2021. He has bought 20 sections. It seems to me to be a market linked endowment policy.

He wants to surrender the policy early to fund household renovation and pay off debt.

Is this considered income for the purposes of tax, or could it be considered moving savings from one product to another?

There are no fees or charges levied by SW for ending the product early.

Any ideas? Thanks!

[Yeahyeahyeahyeeeeah]

It’s tax free. He’s qualified it as tax free due to the time he’s owned it. I’m a Chartered IFA so not ‘guessing’ like some on here.

[GetOffTheRoof]

Ooh, that would be great! So, if he surrenders the policy, does he have to make declarations to HMRC regarding the money or wait for them to ask questions?

Is there something we should be asking of Scottish Widows? They are the ones telling us this "might" be subject to tax but the that they can't advise us....

[GetOffTheRoof]

Oh and huge thanks for replying!

[Yeahyeahyeahyeeeeah]

It ‘might’ be subject to tax if he’d not held it for so long, as it is, nothing to pay, nothing to declare.

Self assessment means that it is ALWAYS your responsibility to declare, but in this case you’ve held the policy for more than the qualifying time so all good, no action required.

[Al2O3]

I’m a Chartered IFA so not ‘guessing’ like some on here. wink

It is not tax-free due to the time he has owned it but because it meets the conditions of a qualifying life insurance policy due to the frequency under which premiums have been paid. I asked my accountant qualified in tax

[Yeahyeahyeahyeeeeah]

Er the conditions for a qualifying policy are based on length of ownership. So whatever.

[Yeahyeahyeahyeeeeah]

Oh and I’m ‘qualified’ in tax. Fuck knows what you think Chartered IFA’s do

[Al2O3]

Yeah I am responding on technical points.

A qualifying policy is based on the frequency of premium payments. The rules are expressed in income tax legislation (ie in the 2005 and 2007 'Tax Rewrites') and based on mortgage contracts forged in the 1970's mainly so that when a mortgage had to be repaid the proceeds of the policy (called an endowment) would not be degraded by the vagaries of tax changes. Contrast that with a non-qualifying policy which is a lump sum investment which has different tax treatment because the rules behind these were forged for a different purpose (wealthy investors).

It is important to understand tax rules. If as an IFA you talk about tax, you 'step into the shoes' of a tax adviser. This puts you into a higher duty of care.

[Yeahyeahyeahyeeeeah]

@Al203 A qualifying policy can still owe tax. How long you own a qualifying policy is what matters. I’m afraid you’re getting a bit confused.

[Yeahyeahyeahyeeeeah]

‘What is a qualifying policy’ is not what was asked.

[Yeahyeahyeahyeeeeah]

It makes me wonder what you do for a living.

I advise people on tax. With a duty of care covered by PI

[MiniMum97]

The rules around tax and qualifying policies are actually incredibly complex since the limit on the amount you could invest into QPs was limited in 2012/13. An apparently simple change that was implemented in an extremely complex way. I worked in Compliance in a FS company at the time and was involved with interpreting the new regs at the time.

I vaguely remember it all and as the policy is old then unless he is investing more than £3600 a year into QPs (held with anyone) and he hasn't varied the policy in that time (eg extended the term over which premiums are paid) he should be OK. However, what counts as a variation will depend on the rules under which that policy was written.

This is probably why SW are sitting on the fence about it. Firstly, it's really complex so they don't want to get it wrong and have to foot your tax bill. Secondly, it's actually very difficult for a single insurer to say for definite as they don't know what else you hold and whether you've varied these other policies etc. So hard to give a definitive answer. I would argue that they could still provide information that would help give people an idea as we dod at my old firm and other providers do by there you go.

I had a quick look around and this explanation from Old Mutual isn't bad...

www.oldmutualwealth.co.uk/Adviser/literature-and-support/knowledge-direct/investments/qualifying-policies/changes-to-qualifying-policy-rules/

Hope that helps.

[Al2O3]

GetOff the proceeds will be free of tax. This is a qualifying policy because your opening post confirms you have held it for the minimum period and your premiums were paid no less frequently than annual. Both conditions, as well as there being an element of life cover, are what are important to secure the tax free redemption so you home and dry.

[MiniMum97]

As long as it hasn't been varied since 21/03/2012 and/or he is not paying more than £3600 pa into QPs!