Chargeable Event on Death-Investment Bond

by **slippers1967** on Wed Mar 30, 2011 1:32 pm

Hi,

A death occured this year on the bond holder of an onshore investment bond. The bond had 2 lives assured (sons of deceased).

The Executor of the Will is one son and not both as the 2nd son has Autism.

The Bond has now been placed in the name of the person on the Grant of Probate- number 1 son.

Question- Who is responsible for the chargeable event as the Bond has only been in place for 18 months and there is potentially a large gain.
Can the gain be based on the original bond holder or is it based on the new bond holder? Will HMRC look at the case and deem that if the Chargeable Event is on the new bond holder can this be split with his brother who was a life assured but due to Autism was not Executor of the Will.
One final twist- The Will states that half of the estate should be held in Trust for the son with Autism, so how can it be fair that potentially the other son has to pay the Tax (especially as he is a higher rate taxpayer).

Any guidance would be greatly appreciated.

by **maths** on Wed Mar 30, 2011 2:27 pm

Not sure there is a "chargeable event".

The bondholder has died owning the bond (but he is not the life assured).

The bond simply falls part of his estate for IHT and passes under his will.

by **slippers1967** on Wed Mar 30, 2011 3:15 pm

Thank you for the response.

From what I have read even on death there is a 'chargeable Event' if the bond is encashed. From your knowledge could you point me in a direction where you have this information from?

Thanks again.

by **maths** on Wed Mar 30, 2011 4:41 pm

Based on your facts the death of the bond holder has no impact on the policy ie it is not surrendered nor does it mature (the life assureds are the children not the bond holder). No chargeable event occurs (ITTOIA 2005 s484).

Thus no liability to income tax arises on death.

If, however, the PRs subsequently encash/surrender the bond a chargeable event then arises (s484).

The PRs are then liable on any gain made; however, I assume a 20% tax credit would be available resulting in a nil income tax liability (ITTOIA 2005 s530).

I find the relevant provisions somewhat difficult to follow but the above represents my understanding.