I have been asked by an individual whether they need to complete a tax return. The only taxable income is from a chargeable event gain on an investment bond. The individual’s
other income is from non-taxable benefits. The gain is more than £10,000 but there is no tax due because the gain is below the combined total of the individual’s personal allowance, blind person’s allowance, savings allowance and 0% starting rate for savings.
On the HMRC website it states that if you have savings income of more than £10,000 you have to complete a tax return but I have struggled to find a statutory basis for this
where there is no tax due. Can anyone tell me whether this is actually a statutory requirement or whether it is just HMRC procedure?
The starting point is sec 7(1) Taxes Management Act 1970. I think your client is ‘chargeable’, even if the calculation would not result in a liability, and therefore you need to work through the exceptions in sec 7- or just advise them to write a letter to HMRC, which seems to me to be the safest option
I had a very similar situation. The only ‘income’ my client (a beneficiary of a Trust) had received was a chargeable gain on an investment bond of over £10,000. I too referred to the HMRC guidance you have noted, but to clarify I called HMRC. I was informed that although the gain was more than £10,000, as no Income Tax was due a Tax Return would not be required.
Two things to remember. A chargeable event gain, is gain which is chargeable to income tax, rather than being savings income.
Also, if a UK policy, then basic rate income tax should have been deducted at source already and so there will be no tax affect. No refund is available either, if not a taxpayer. On this basis (and subject to other income), no tax return should be required. Remember, no tax is deducted from foreign policies.
HMRC will be presented with the information of this gain directly from the policy company and may query no reporting, if they consider a tax charge is due (I have had this on a client because they had a foreign policy). At that point, you can argue, no tax is due.