Q. I have an investment bond which has made a profit of £60,000 over the 15 years it has been in force. How will I be taxed on this?
A. There is one piece of information missing from your question, which is your income. However, I will try to answer it anyway. An investment bond issued by an insurer in the UK pays tax within its fund on the investment income and gains made, which is regarded as sufficient to reflect basic rate income tax. Therefore, the principle is that nil or basic rate taxpayers have no further tax to pay, but higher or additional rate taxpayers will have a further 20% or 25% tax to pay to make up the difference between the 20% basic rate tax and 40% or 45% level. However, there is a relief where the amount of the gain takes a basic rate taxpayer into the higher rate band. Top-slicing relief is designed to recognise that the gain has built up over many years, and it is unfair to add the full gain to your income in a single year. The gain of £60,000 is divided by the whole number of years the plan has been in force to give a “top sliced gain” of £4,000 in your case. If your income, plus the top-sliced gain of £4,000, keeps your income within the basic rate band no further tax is payable. If, say, half the top-sliced gain is within the basic rate, and half is in the higher rate, then that proportion is applied to the full gain to calculate the proportion subject to higher rate tax. One further point to make, however, is that the full amount of the gain is added to your other income to calculate whether or not you lose the personal allowance for tax purposes, your entitlement to Child Benefit or whether the new Tapered Annual Allowance for Pensions is applicable to you.
Q. I am self employed and have never been able to benefit from subsidised childcare. Is it correct that this may change in the future?
A. Yes, there is a new subsidised childcare scheme starting in 2017 which has one big category of winners: the self-employed, who, as you point out, are excluded from the current system which is a voucher scheme run by employers. But there are still many restrictions for the new scheme. Both parents must be in work, both must earn at least £100 per week and neither can earn more than £100,000 to be eligible. If you are eligible, you can claim £1 for every £4 you spend on childcare up to £2,000 per child per year for a maximum of four children. Unlike the current voucher system, the new one is independent of employers, so it will also be much easier to keep the benefit when moving jobs.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
