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Find out more'Can I cash in my investment bonds without risking a tax bill?'
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Samantha specialises in personal taxation and trusts. She enjoys being able to demystify these complex areas.
In the late 1990s, I took out several bonds with a life insurance company. I’ve never withdrawn any money, but I now want to do so.
The insurance company has told me that I can take £5,000 from each bond without incurring tax.
But is there a risk that adding up the £5,000 withdrawals from several different bonds could lead to a tax bill?
Jackie from Nottingham
'What matters is how much you invested, and when'
Samm Galloway, Which? money expert, says…
These sound like investment bonds. They allow you to take 5% of the original capital amount invested, for each total year the bond has been held, up to a maximum of 20 years.
Because the £5,000 you’re taking from each is the capital, not the profit, this is tax-free.
As the bonds are separate from each other, the tax-free withdrawals from each won’t be added up to create a tax liability.
In fact, as you have held these bonds for more than 20 years, you could, if you choose to, take 100% of the original capital from each bond with no tax bill.
Because the £5,000 you’re taking from each is the capital, not the profit, this is tax-free
If you take more than the original capital – for example if you fully surrender the bond – as you would be taking the gains, this creates a chargeable event.
This gain comes under income tax, not capital gains tax, rules. This can create a potential tax liability for some people.
A process known as top-slicing considers your income in the tax year that the chargeable event occurs and the total gain.
Seek professional tax advice to determine if you have a liability and steps to mitigate this.
- Find out more: Tax on savings interest and investment income explained
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