My wife and I hold a joint investment bond worth £230,000. I am retired but still a higher-rate taxpayer. I would like to remove my name from the investment so that my wife – who is a basic-rate taxpayer – can draw funds from it without incurring an additional tax liability.
We hold the investment for growth, and any future withdrawal plans would be for flexibility in switching to Isa investments.
Would a simple letter to the investment house signed by both of us suffice? Or is there anything else that we need to consider?
As you jointly own the investment with your wife you are deemed to own half of it each and you will be taxed accordingly.
The returns from an investment bond have been taxed at 20% within the bond, and as such there is no further tax to pay until a ‘chargeable event’ occurs, such as when the bond is surrendered or part-surrendered, withdrawals in excess of 5% per annum cumulative are taken, or on the death of the last remaining life assured.
If there is a chargeable event, the top sliced gain (the average gain made each year from the proportion withdrawn) is added to the policyholder’s income, and if they are a higher or additional rate taxpayer or if the top sliced gain pushes them into higher rates of tax then there will be a tax liability.
As this is the case it’s often sensible to hold an investment bond in the name of a lower earning spouse or civil partner.
This then means that there is less likely to be a tax charge if a chargeable event occurs, or the tax charge could be lower.
The process to assign the policy solely to your wife should be very straightforward. You can request a deed of assignment form from your product provider. This changes the legal ownership of the policy by way of a gift. The form should be completed and returned to your product provider, which will then change the ownership details, so your wife becomes the sole beneficial owner.
Assigning the policy to your wife by way of a gift doesn’t trigger a chargeable event and is also exempt for inheritance tax purposes.