Stand-out Q – withdrawals on a bond…

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MON, 05 FEB 2018

Our Technical Hub provides access to a wide range of pension tax and trust technical resources. Every now and then we post tweets covering stand out questions from our technical content and our answers in case others might also find them helpful. As Twitter’s character restrictions only allow for the bare bones of the Q&A we link to the details here, too.

Question:

How do I calculate the 5% withdrawals available for a bond when the premiums were paid on two separate days?

Answer:

Where an individual invests funds in a bond using several premiums on separate days, the 5% tax-deferred withdrawal is calculated separately for each premium.

It is easiest to understand this by considering an example.

Example

Frank invests £50,000 in an onshore investment bond in January 2011. He invests a further £30,000 in the same bond in October 2013.

In July 2018, he decides to withdraw the maximum tax-deferred cash available and wants to know how much of the 5% allowance is available. He has not made any previous withdrawals.

Each premium must be considered separately. The number of years the 5% allowance is available for each calculation, including the current year, is as follows:-

table for blog updated FEB 2018

This means that, although 20 years may have elapsed since the first premium was paid, 5% tax-deferred allowance could continue to accrue in respect of premiums made after the bond’s inception.

HMRC’s manual provides further examples at IPTM7620.

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