celticgrid

Just to note that I didn't mention Insurance Premium Tax.

Tax relief was allowed on the full premium (irrespective of what portion was for life insurance and what for investment). Therefore every 10 pounds of premium paid (cost) actually resulted in a lower tax bill, so the real cost was less than 10.

Just straightening things out. I have no intention of trying to perform a complicated calculation when the time comes, because whatever I do is going to be able to be challenged, so I may as well take a simple view and simply cross fingers.

celticgrid

Of course. You and I lived in different places, and tax laws are different in different places.

The bulk of the premiums on this endowment were paid while Isle of Man resident, and the IOM allows full tax relief on premiums paid for life insurance, whether pure life insurance or endowment based. One of the small perks of small island life!

scrubbedexpat099

I must admit I had not considered the implications for the Isle of Man, or anywhere outside England/Scotland/Wales.

Another complication.

dunroving

Just thought I would pull this back up and ask another question that occurred to me while walking the dog.

Would any profit on an endowment be "income" (like savings account interest) or a "capital gain" (like profit on stocks and shares)?

If the latter, isn't the capital gains threshold in the US pretty high, and most endowment profit pretty low (I can't imaging mine will be much more than £5k to £10k more than the total payment of premiums, thanks to the cr*p endowment performance)? In which case, the capital gain my not even necessitate tax?

Or maybe I am mis-remembering the US taxation of capital gains.

scrubbedexpat099

Generally it would be a capital gain.

For most, the gains are credited annually with a final bonus which for a low cost endowment used to be a nice chunk of change, but not so impressive now.

I do not know the US limits, but arguably you could have to declare the annual bonus that attach annually.

celticgrid

The question of interest v. capital gains is interesting. I was, at this stage, assuming it would be interest, but having thought about it I can see an argument for it being capital gains. Nearer the time I'll have to get a professional opinion.

I'd question your view of annual bonuses. In general interest is taxed at the point it is paid, not when it accrues. So interest on an annual basis, paid 5th January, is taxable in the year it is paid, not back the previous year when most of it accrued. So, the question would be whether the bonuses are simply notices of accrual rather than payments. Can you withdraw each year's bonus amount without affecting the overall financial investment? I think the answer is no, and would therefore consider them as accruals rather taxable elements. But I'm not a professional!

I guess for now all we can agree on is that there is no right answer to all this...