confused.pom

We have 9 years to go on a 25 year endowment in the UK. We were simply going to continue this endowment from Oz until it completes. The endowment is well below expectations currently. I am starting to get concerned about tax implications in both Oz and the UK.

Has anyone out there doing this, have done this and been ok, or got into hot water?

Thanks.

brickies wife

I would be interested to hear what advice you receive We too have an endowment which we have continued. I did mention the endowment in passing to my accountant when I was having my yearly accounts done, and he gave me the impression that all would be fine and the ATO would not be taking a cut, hopefully he is right

garyp

try selling it like I am in process of doing to fund the migration. its been losing me money from the start,like all endowments,and will save me £40 a month as I am renting out house and there will be no tax implications when mine pays out in 9 years.

Pomster

My financial advisor recommended selling as the projections were not good.

Not sure how he did it but it went for auction and it got about 800quid more than a standard sale....still way below the original projected value, but sometimes you have to cut your losses.

If I had continued paying, I would have got less back than I paid in over the next xx years.

Sell!

killerhales

Definitely don't sell it, the endowment companies take advantage of this and you get the worst possible return.

There is a section on the ATO website that covers this. My interpretation of this is that you have to pay tax on any increase in value of the endowment over the tax year, just like any "investment product" so any bonuses that get added are taxable.

This is despite the fact that they will almost certainly be less than the money you are putting in!

I am no tax expert and I could be wrong.

Many Australians I know are quite happy to do anything they can to minimise their tax bill, including being "economical with the truth". I am not recommending this type of approach, simply making an observation!

garyp

I agree you should never sell but its a case of needs must and I will get more back than I paid in and if I surrender the policy I will lose approx £2000 on current value but as you know this could end up being more or less on maturity. I needed finances to fund trip after trip to OZ last year for interview and reccie which wasnt cheap. it saves me paying £40 a month and I wont have to borrow additional funds on mortgage as I am renting UK house.

Andrew Williams

Hi


As with all things investment/tax related not a straight forward answer.

Depending on certain factors, it may be that someone has to pay tax in Australia on the Endowment every financial year on any growth it has made at their marginal tax rates.

If for one reason or another they are exempt from having to pay tax year on year then there will still more than likely be a tax bill on the growth of the fund when it matures since the person became an Australia resident.

Some of the main factors taken into account are:

Ownership, fund value, visa status, relationship status and other assets held.

This ruling falls under the Foreign Investment Fund rulings and a lot of Australian Accountants are not very familiar with how these work.


Regards


Andy

ozhappy981

We sold ours as well (we had one each).

I got quotes from the companies that the endowment was with. And then I got quotes from several of those companies you can seel your endowment to (they then keep it going until maturity and get the cash on maturity).

The on-selling companies gave me much better quotes and we sold both to them. Can't remember the names of the companies, but google "endowment selling" and loads come up.

Spend a bit of time getting quotes. I seem to remember I got about five quotes and they were all differernt. We then went with the highest .

Swerv-o

So it follows that if the endowment is making a loss each year that that could then be set against any Australian based income?


S

Andrew Williams

What type of Endowment do you have Swerv-o?

Swerv-o

I don't - I was speculating that if you had to pay tax on any potential increase in value, could you use a decrease in value as an offset against any potential tax liability in Australia...


S

Andrew Williams

Hi, sorry Swervo, I thought that the question was in relation to an Endowment that you had as the answer again is not a straight forward one.

However, it is unlikely that someone would be in this position as generally speaking most Endowments would not be in a situation where there is a loss in one particular year.

The most common type of Endowment is a With Profits style investment product and with these style funds the value does not reduce.

The nature of it is that the value of the investment remains constant and the growth comes by way of bonuses, usually annually and a terminal bonus at maturity.

Again with a lot of the With Profits, once a bonus is added it cannot be taken away therefore the value does not reduce. All be it the bonuses have been pitiful lately and some companies will not even declare a bonus when times are really bad the capital value does usually remain.

There are other types of Endowments but they are not very common.

Regards

Andy




(This comment is general information ony)