Reporting a Chargeable Event Certificate on your Self Assessment Tax Return - ESDG Accountancy

Reporting a Chargeable Event Certificate on your Self Assessment Tax Return

Photo of author

Aimee Nichols, Chartered Accountant

Investors with life insurance policies or investment bonds will inevitably receive chargeable event certificates at some point. These certificates must be dealt with correctly and proceeds over a certain threshold should be declared to HMRC. Failure to report chargeable events could result in penalties and interest being imposed on the policyholder by His Majesty’s Revenue and Customs. ESDG Accountancy provides expert services to manage this process on behalf of their clients, ensuring compliance with HMRC whilst minimising tax liabilities.

What is a Chargeable Event?

There are eight types of chargeable events that could be triggered on an investment bond or life insurance policy. The most common types of events that our clients experience most often are:

Death: So long as the policyholder and the life assured are the same person, their death will end the policy and trigger a chargeable death event.

Maturity: If the policy has a fixed end date, the arrival of this date will end the policy and trigger a chargeable maturity event. Typically this is seen for capital redemption bonds with 99 year terms.

Surrender: If the policyholder chooses to end the policy and cash in the funds, this will trigger a chargeable surrender event. A chargeable event can also be triggered by a part-surrender if the policy holder only cashes in a part of the policy.

Assignment for money or money’s worth: If the policyholder transfers the policy to someone else, there is no immediate tax implication. However, if the policy is ‘assigned for money’, i.e. sold, then this will trigger a chargeable assignment event.

What is a Chargeable Event Certificate?

When a chargeable event is triggered, the insurer will send a chargeable event certificate to the policyholder. Insurers are required to do this under section 552 of the Income and Corporation Taxes Act 1988. There is a standard format that insurers must use. This ensures that all necessary information is given to the policyholder to allow them to fulfil their tax obligations.

The chargeable event certificate will include:

Type of chargeable event: This explains what has triggered the chargeable event i.e. death, maturity, surrender, part surrender or assignment for money’s worth.

Date of chargeable event: This will clarify which tax year the event falls into, so it could effect your reporting requirements.

Surrender value: This is the value of the policy when it comes to an end, or the amount of cash the policyholder will receive. This value is important as it dictates whether the gain must be reported to HMRC.

Amount of gain: This is the increase in value over the life of the policy. This is the amount on which tax may be payable.

Number of years for top-slicing relief: If the policy has been in place for a number of years then there may be tax relief available. This only applies for higher or additional rate tax payers and cannot be used by personal representatives, trusts or companies.

Amount of tax treated as paid: 20% or ‘basic rate’ tax could be deemed as already paid on the gain by the insurer. This could mean that the policyholder can claim tax relief for basic rate tax to avoid the tax being paid twice.

All of this information is vital for working out your tax liability. You should keep a copy to give to your accountant when the time comes to file your tax return.

How is a Chargeable Event Taxed?

Calculating the gain: A chargeable gain on an investment bond or life insurance policy will be calculated like a capital gain. The gain is calculated by subtracting the initial investment amount from the surrender value, excluding any withdrawals taken throughout the term of the policy.

Tax rate: The rates of tax applicable to these gains depend on the individual’s income tax bracket, as the gain is treated as income and added to other taxable income for the year. The rates of income tax in the 2024/25 tax year are 20% (basic), 40% (higher), 45% (additional).

Reliefs and allowances: There could be tax relief available for ‘tax treated as paid’ for onshore bonds. This relates to the tax already paid by the insurer. For higher and additional rate tax payers, top slicing relief could also be available. This aims to reduce the tax liability if the policy was held by the policyholder for a number of years.

The Role of ESDG Accountancy in Managing Chargeable Event Certificates

Handling chargeable event certificates can be complex, especially determining the tax owed if any. ESDG Accountancy takes the stress out of this process for their clients by managing all aspects:

  • Reviewing the Certificate: The professionals at ESDG will review your certificate to understand the details of the chargeable event.
  • Accurate Tax Reporting: They will ensure the gain from your investment is accurately reported on your tax return, avoiding common mistakes and giving you peace of mind.
  • Tax Planning Advice: Beyond just managing the certificates, ESDG Accountancy provides strategic advice to help clients minimise their future tax liabilities related to these investments.

Why Choose ESDG Accountancy?

  1. Expertise: ESDG Accountancy has a deep understanding of the relevant tax regulations.
  2. Personalised Service: They offer tailored advice and services, considering your specific financial situation.
  3. Comprehensive Support: From preparing and filing tax returns to offering proactive tax planning strategies, ESDG covers all bases to enhance your financial outcomes.

Conclusion

With ESDG Accountancy, you don’t have to worry about the details of chargeable event certificates. Their expertise in managing these tax affairs means you can focus more on your investments and less on the paperwork. Whether you are new to investment bonds or have been managing policies for years, ESDG’s approachable and professional service can make a significant difference in your financial management.

For those looking to ensure their investment gains are handled correctly come tax time, partnering with ESDG Accountancy is a smart choice. They make it simple, straightforward, and stress-free.

For more information on how ESDG can help you with your tax returns and financial planning, why not get in touch.

About the author

Ed is qualified Chartered Accountant and founded ESDG Accountancy in 2020. He has gained extensive experience in various sectors, working with business owners, international groups, & private equity investors.