Stand-out Q – withdrawals on a bond…
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How do I calculate the 5% withdrawals available for a bond when the premiums were paid on two separate days?
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.
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:-
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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