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How to deal with Chargeable Event Gains on deceased estates

As a Chartered Tax Adviser, here is something I (James), often hear from Executry solicitors:

Hi Jamie, I’ve got this bond in a deceased estate that I’m dealing with, I wonder if you can clarify a few things?”

Once I hear this, alarm bells start ringing. My gut tells me this isn’t going to be a lovely easy government gilt or a guaranteed bond from the National Savings and Investments platform.

Why is a bond in a deceased estate different?

This is a bond that might produce a ‘Chargeable Event Gain’ certificate if encashed. It’s a life assurance bond. It strikes fear into the hearts of private client solicitors and general practice accountants (who don’t have access to dedicated tax teams).

It’s the outlier, the rogue, the identity crisis of the tax world. It’s not quite an income; it’s not quite capital and the taxable amount rarely relates to the cash you receive when it’s encashed.

Why can’t it be treated like any other bond?

One of the biggest problems is that no two are the same. Each of these questions invites a different answer, and thus a different scenario and how it should be dealt.

  • Is it held in a trust?
  • Whose life is assured on the policy?
  • Is there a non-residency element to this?
  • Is it reportable on the deceased, the trustees, the beneficiaries, or the administration period?
  • Why is my Interest In Possession trust software taxing this like it’s a Discretionary trust (45% rates)?
  • Does it go on the R185?
  • How about Top Slicing Relief?
  • What on earth are segments?
  • Do I need a bare trust to assign this?
  • How about Notional Tax credit?
  • How does the trust registration service fit into all this?
  • Do Inheritance Tax exit charges apply?

Information is key here. You need to ask the right questions of the policy providers. I find that the large providers are helpful when asked specific questions.

Does any of this seem familiar?

Have you been guilty of putting the Chargeable Event Certificate on the file and hoped that the problem goes away? If so, please get in touch because I can help.

HMRC specifically receives the gain information from the providers. It might take them a while but the letters from the Worldwide Disclosure Facility will start coming in and that’s never nice, especially if you’ve already finalised the administration period. It’s crucial to ensure your ducks are in a row.

About James Edwards MA ATT CTA

James is our Tax Director and is a member of the Association of Tax Technicians and Chartered Tax Advisor issues.

He specialises in the taxation of individuals as well as the taxation of trusts, estates, and inheritance tax. This allows him to deal with a range of issues, from employees with income tax issues, to farmers with capital gains tax and succession issues.

Get in touch if you have any questions: email Enable JavaScript to view protected content. or phone 0131 364 4191.

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