- Inherited a lump sum of £150,000.
- Recently retired.
- Wants to make sure he has a guaranteed income for the rest of his life.
Purchased Life Annuity
Ryan has recently retired but is finding the state pension inadequate to meet his needs. Sadly Ryan’s father recently died and he has inherited a lump sum of £150,000 from his estate.
Ryan would like to make sure he has a regular guaranteed income for the rest of his life and after speaking with his professional adviser he decides to invest in a Purchased Life Annuity (PLA) from Canada Life. In return for investing the lump sum he will receive a guaranteed monthly income for the rest of his life.
The tax benefits associated with a PLA are also of interest to Ryan. A part of each monthly income is not subject to tax as this is simply a return of the lump sum Ryan invested. This non-taxable portion is known as the capital element. The remaining part of each monthly income is known as the interest element and is taxable at Ryan’s marginal rate of income tax.
- The PLA can provide a guaranteed income either monthly, quarterly, half-yearly or yearly.
- The income is payable for the whole of your life.
- The capital element of each monthly income is non-taxable.
- The interest element of each monthly income is taxable at Ryan’s marginal rate of income tax.
On Ryan’s death
- The monthly income will stop and no further payments will be due to his estate.
- The lump sum that Ryan invested is immediately outside of his estate for inheritance tax purposes.