Continuing our focus on the most common questions around chargeable events, we look at our final two queries below.
No. 4. Student loans and chargeable gains
Most children heading to higher education need to supplement their finances with a student loan. Where that child could also potentially benefit from an investment bond, consideration needs to be given to the exit strategy, if that occurs when the child is working.
The child may have to make additional student loan repayments if they receive savings income of more than £2,000 a year. Savings income includes interest on stocks, shares or savings.
Chargeable gains are treated as savings income so, where a gain is realised and assessed on the child, they could be asked to make loan repayments of 9% of the gain.
No. 5. Segment surrender or partial withdrawals
Which way is best will depend on the client’s circumstances at the point they require the money. When deciding which option is suitable there are a number of factors to take into consideration but, as a general rule, if the amount required is less than the 5% tax-deferred allowance, use that.
If the amount required is much higher than the 5% tax-deferred allowance, or regular withdrawals have used it up, segment surrenders would normally result in the lowest gain. A combination of partial withdrawals and segment surrenders could, however, trigger an even lower gain.
But remember chargeable gains in respect of partial withdrawals are calculated at the end of the policy year, whereas gains on segment surrenders are calculated on the actual date of the event.
If these dates fall in different tax years, the tax bill could be payable earlier depending on which way the money is withdrawn. So, if the client has fluctuating income, the timing of the chargeable event may be crucial.
Also remember that if segments are surrendered, any accumulated and future 5% withdrawals relating to the surrendered segments will be lost.