I am dealing with tax to date of death for an individual who held an offshore bond with ReAssure.
We have received a chargeable event certificate for 1 segment out of 100 showing a gain of £1,700. However, i have calculated a gain of £170,000 as below.
I have gone back to ReAssure to ask if the gain £1,700 gain is correct given the information below and they have advised that under the type of policy set up, the chargeable event gain falls on last segment only therefore is correct.
Has anyone else come across this term before and are ReAssure correct that only 1% of the actual gain is taxable (this seems highly unlikely) under the type of policy.
It’s not something I have ever seen. I would suggest you ask ReAssure for chapter and verse in writing as to why the other £160k+ of the gain is not taxable. Apart from wanting to understand why, I would also want this on my file to show why I was only declaring £1,700 rather than £170k.
Tentatively, my experience of NQ policies in segments is that each is technically a separate policy for chargeable event purposes and withdrawing 5% pa tax-free.
This facilitates greater flexibility than a single policy and one or more partial surrenders. One can fully surrender one or more segment. It sounds as if 5% withdrawals have been made from several. It might be that your calculation is based on a greater total surrender pattern than has actually been implemented.
A insurance provider rarely makes an error in furnishing a certificate because it is a bread and butter operation for them and they have a separate obligation to HMRC in exercising that function.
Of course you are right to safeguard the taxpayer’s own reporting obligation by asking the insurer to explain their calculation in case some misunderstanding has occurred. While using their figure would probably constitute a reasonable excuse for penalties, if successfully challenged by HMRC it would not avoid interest on discovery.
Apart from anything else, if only one segment has been surrendered you will want to know what is the exposure on the 99 which presumably haven’t.
About 20 years ago some providers offered NQ policies where the investment growth accrued solely to the last policy/segment in the bond. The idea was that segments could be surrendered at any time and until the last segment was surrendered there would be no CE gain.
These arrangements were countered by FA 2012 s.11.
However the arrangements only deferred the gain(s); they were not ‘eliminated’.
I suspect that your calculation of a gain of £170,000 is correct. ReAssure’s technical or legal department should be able to clarify the position.
A surprise Gerry, I’d never encountered one of these despite being Methusalah’s elder brother.
Was the trick that every other of the 99 segments could be surrendered in full with no chargeable gain as they only returned a fraction of the original investment?
I think these types of policies were only available for a short period before countered by FA2012. The objective (as i recall) was to increase flexibility regards withdrawals and to allow full segment surrender without triggering a chargeable event gain (as an alternative to the cumulative 5% allowance). The gain was deferred not avoided as the growth was just allocated to the final segment surrendered. Having gone through some very old files I have found some product literature for one of these schemes and it seems to me that it restricted the surrender value of segment 1 - 99 essentially to the amount of original premium into each segment, all the gain being allocated to segment 100. However, from what I can tell, the death benefit worked differently, whereby each segment had an equal death benefit value (so any growth was allocated evenly across the segments). Obviously the policy you are dealing with may be a different scheme but nevertheless, based on your numbers the gain should be £170,000. I wonder if the provider is confusing the tax treatment of surrendering segments and a death claim?
Surely death constituted maturity triggering the entire gain? Couldn’t that have been avoided by using several younger lives assured or a long fixed period?
As far as I know the GAAR Panel has not been called upon to apply their minds to whether the nuts and bolts of a discrete structured finance product, retail or commercial, can come within the legislation enacting GAAR and so within their remit to opine.
Not sure how HMRC could frame a counteraction notice without destroying the entire design structure, so arrogating to themselves in effect a de facto prohibition on participation.
Of course they could argue that it simply does not work as claimed and see you in court (so no need to resort to GAAR) and that it falls within DOTAS, a single transaction can be an “arrangement”, thereby supplying themselves with the power to ordain a chilling commercial nemesis by means of a stop notice. An appeal against that is as prospectively efficacious as one to the Moscow City Court was when Comrade Olga Yegorova was Chairwoman.
This regime now has its intended effect of pre-empting self-censorship of disapproved types of creativity on the part of those who value their reputation and livelihood. Covert quasi-legislation in terrorem. The ends do not always justify the means. The traditional legitimate method was the way FA 2012 dealt with these bonds, supplemented in egregious cases by an announcement that the change in the law will apply from as from the date it is published..