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ScotEq opens up tax window on insurance bonds

Scottish Equitable has highlighted a tax discount window for higher-rate taxpayers who want to cash in their insurance bonds.

It says higher-rate taxpayers cashing in insurance bonds, including with-profits bonds, have to pay 18 per cent additional tax until April 2004 compared with 20 per cent thereafter.

The tax discount window came into being as a result of policyholder taxation legislation announced in this year&#39s Budget but ScotEq says it has largely been overlooked.

The company believes IFAs with clients who are higher-rate taxpayers should take the tax discount window into account when advising clients what to do with their insurance bonds, particularly if the client is about to enter into a market value reduction-free period on a with-profits bond.

Technical manager Margaret Jago says: “If the client is about to enter an MVR-free period, the timing of when the bond is cashed in may depend on their tax status.

“IFAs should be aware of this tax window and take account of it in their recommendations. Many commentators have suggested that now is a good time for clients to exit traditional with-profits and this tax window could be an extra incentive.”


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