Taxation

Second hand endowment policies are a good source of secure and tax free investments

TAX FREE INVESTMENTS!

To the best of our knowledge the information is correct at this time. The A1 Policy Shop Ltd cannot be held responsible for providing tax information and prospective purchasers should seek independent advice before purchasing a policy.

The tax position at the maturity of a traded endowment policy, for those resident in the United Kingdom for tax purposes, will depend whether the policy is Qualifying or Non Qualifying.

QUALIFYING SECOND HAND ENDOWMENT POLICIES

(Policies unaltered since inception or altered in a manor to retain the original tax treatment)

These policies may be subject to Capital Gains Tax. There may be tax due at maturity if the gain exceeds the current tax free allowance of £8500 for the year 2005-2006 after deducting the cost of purchase and premiums paid. Should the policy be purchased in two names the tax free allowance would be £17,000.

Any taxable amount is subject to a maximum of 40% for a higher rate tax payer and 22% for a basic rate tax payer. This rate is reduced by up to 40% for non business assets held for 10 years (taper relief) and by 75% for business assets held for 2 complete years.

NON QUALIFYING POLICIES

(Policies altered in mid term may become non qualifying and treated for tax purposes as below).

BASIC RATE TAX PAYERS

The profit (Chargeable Event) may be subject to Income tax at the marginal rate "Top Slicing" and investors should decide whether this figure moves them from the basic rate tax band to the higher rate.

To calculate the Chargeable Event

1. From the maturity figure subtract the total of all premiums that have been paid since inception of the policy.
2. Divide this figure by the number of years the policy has run to maturity.
3. Add this final figure to the taxable income for that year, if the investor is still within the basic rate, no tax is payable.
4. Should this figure, when added to the income for that year, exceed the basic rate band then the excess amount should be multiplied by the number of years the policy ran and tax is assessed on the final figure at the marginal rate of 18% (40%-22%) as at April 2005.

HIGHER RATE TAX PAYERS

The Profit (Chargeable event) is subject to Income tax at the marginal rate of 18% as at April 2003, see above "Top Slicing". Tax is applicable to the maturity figure less all premiums paid since the inception of the policy.