When inputting an existing Investment Bond, i.e. one that was already in place at the plan start date, there are a number of options, under Advanced Settings, that may require your attention. This guide focuses on accurately reflecting the tax implications that may arise and, from a tax perspective, there are 3 options in particular that should be looked at:
- Life Fund Segments
This invites one to enter the number of segments originally purchased, along with the number of segments still 'in force' as at the plan start date. Even if you have to make an assumption to do so, we suggest entering the number of segments within the policy, wherever possible. This gives the software the best chance of accurately capturing the tax implications that would arise from any 'excess withdrawals' that may occur, during the course of the plan.
- Liquidation Limits & Planned Withdrawals
Under this setting, we suggest that you tick the option labelled 'Apply Tax Optimization Strategy to Withdrawals', as detailed here...
- Previous Withdrawals/Top-Ups
If one tries to enter a Bond into the software without first selecting, and addressing this option, you can expect to be met by the following prompt (although the value, of course, is likely to differ):
If no withdrawals have previously been taken from the Bond, one can safely 'Ignore' but, where the owner(s) of the Bond have either taken withdrawals, and/or 'topped-up' the segments originally purchased, it will be necessary to enter some additional details, in order for the software to reflect the tax implications as accurately as possible.
When the (Previous Withdrawals/Top-Ups) option is selected, the following pop-out box appears:
This 'dialogue box' should be completed as follows:
- Remaining Principal/Cost Basis
This is the total remaining value of all invested principal (i.e. original investment, plus any top-ups, less tax-deferred withdrawals), i.e. this value should reflect the 'cost basis' of the asset, as at the plan start date.
- Most Recent Excess Withdrawal
In the event that the owner(s) have taken a taxable withdrawal, at some point, the year of this withdrawal needs to be entered (as this impacts on any 'top-slicing' calculations).
- Previous Top-Ups/Segment Encashments
In the event that segments have been either liquidated, and/or 'topped-up', the relevant number of segments should be entered, as applicable, at each anniversary of the policy start date. As indicated, where existing segments have been 'topped-up', the corresponding value of the 'top-up' should also be entered, in the relevant year.
As an example, a Bond may have been purchased in 2007, with 100 segments, and an original investment of £500,000. By 2011, no withdrawals had been taken (so no segments had yet been liquidated). In that year (2011), the individual chose to 'top-up the existing segments with an additional investment of £50,000. Given these facts, the Remaining Principal/Cost Basis would be equal to £550,000. For the year 2011, one would enter '100', under # Segments at Start and would enter '50,000' under Top-Up Amount.
Last updated 19 October 2015, Release 4.0.23