22nd February 2018

Prudential: Wholly disproportionate gains

Exceeding the 5% tax deferred allowance for life assurance bonds can result in gains which are disproportionate to the true gain made within the bond.

A new process aims to allow policyholders to make an application to have wholly disproportionate gains recalculated on a just and reasonable basis.

HMRC have published guidance in their manuals in respect of life assurance bonds and excess gains. As you know, life assurance bonds have a unique feature whereby individuals and trustees are able to take up to 5% tax deferred, across all of the segments, each year, out of their bonds.

However, if this amount is exceeded it can lead to gains which are disproportionate to the true gain made within the bond. The famous Lobler case resulted in a government consultation on the chargeable event regime for excess gains. However, this did not end in any rules being changed to the 5% regime, but to a process being put in place that allows policyholders to make an application to have wholly disproportionate gains recalculated on a just and reasonable basis.

Read full article here.

Technical, Tax, Trust & ISA