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Where Taxpayers and Advisers Meet

Frantic Freda - Inherited American Annuity

DavidTreitel
Posts:271
Joined:Thu Aug 16, 2012 4:31 pm
Frantic Freda - Inherited American Annuity

Postby DavidTreitel » Sat Apr 29, 2017 12:46 pm

Any suggestions welcomed. Freda is a long-term UK resident and is subject to UK tax on the arising basis.

Freda's mother died in America last year and left a US tax-deferred annuity contract to Freda.

The value has been annuitized following mother's death and is being paid out to Freda over the next 5 years in equal annual annuity instalments. This is a decent description of how US tax deferred annuities are structured: http://www.investopedia.com/terms/d/deferredannuity.asp.

In the past where I have seen these purchased by UK residents, I have seen HMRC arguing that withdrawals by the original investor are taxed in the same way as any other non-UK qualifying investment bond; so that surrenders of up to 5% of the original investment are not taxable.

In Freda's case, the policy has been inherited rather than purchased - I am unsure what tax Freda might owe on the 5 annual instalments. Could it be UK CGT? UK income tax; if so on what amount or percentage? ??? :)

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