Chargeable Event Certificate timing

[davidxt]

My mother has had an investment bond for about a decade, and in March this year she made a large withdrawal. This was the only time that any withdrawal or additional deposit had been made since the initiation of the bond, and was sufficient sum to trigger a chargeable event, which had been anticipated.

In May, she assigned the bond to myself (as a gift, for nil value as part of agreed IHT planning). No further additions or withdrawals have been made since.

In September I received the Chargeable Event Certificate, addressed to me.

We had wrongly assumed that the chargeable event is triggered at the moment of the gain, and had planned for the tax liability within my mother's affairs for the tax year to April 15. We did not know at the time that the gain is calculated at the end of the policy year respective of all movements within that year. Although I read the policy before these events I did not imagine that the tax liability would not stay with the investor who owned the asset during the time of the gain.

This leaves me with the problem of a potential tax liability that we had planned would accrue to my mother (and within a different tax year). It also seems to be against natural justice, since the gain was made wholly within the ownership of the bond my my mother, yet because the assignment was made prior to the end of the policy year, the tax liability turns out to belong to me. The extra tax liability is very inconvenient, and although my mother is perfectly happy simply to gift to me the amount eventually charged, it will then make a mess of our IHT planning.

Having read the policy I do not think that I can object to the timing of the certificate issue, but does anyone have experience of this matter and knows if it is possible for an insurance company to issue for example two certificates one to the policy owner before an assignment and one to the recipient after the assignment, pro-rata to the gains made by the respective parties?

Or of any other suggestion?

with thanks

[pawncob]

HMRC's rules are here:
https://www.gov.uk/government/publicati ... april-2002

para1.3 may help you.

The date of issue of the cert. depends upon the insurer's Ts & Cs. If they can be varied, the first point of contact would be the insurer. If the date can be varied, only one cert. would be required as only one event occurred.

[maths]

If the partial surrender and the assignment occurred in the same insurance year then the liability should fall on the owner of the policy at the date of the partial surrender and not at the end of the insurance year.

The insurance year is the year from the date the policy was taken out to the subsequent anniversary etc.

[davidxt]

Thanks for the replies.

maths: I agree that your statement seems wholly reasonable, and that is the interpretation I seek, but I cannot find evidence elsewhere. Can you point me to some documentation to support this interpretation?

[davidxt]

Actually please ignore that last request. I have found some information following the link kindly given by pawncob.

For the benefit of others who may be interested here are the references:

https://www.gov.uk/government/publicati ... april-2002

Part surrender followed by an assignment (part or full) by way of gift 6 Test under section 509. If a chargeable event, event occurs at time of the part surrender.

http://www.hmrc.gov.uk/manuals/iptm/IPTM7625.htm

Date of part surrender or assignment event
The date on which a part surrender or assignment event arises is the date of the relevant transaction, not the date on which the insurance year ends. This mechanism is to ensure that the gain is attributed to the person liable at the time of the event, rather than the person liable at the end of the insurance year.
Both the date of the event and the date on which the insurance year ends need to be reported on chargeable event certificates.

[maths]

Legislation on gains arising from contracts of life insurance is contained in ITTOIA 2005 Chapter 9.

In relation to the particular query raised above, ITTOIA s 509(4) is the relevant section (albeit for a full understanding of the issue other sections must be noted). In particular the assignment must not have been for any consideration.