surrendering bonds

  • mr lynton
  • 27/10/08 31/05/09
  • a depositor
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Posted: Tue, 22/09/2009 - 10:04

Hello everyone,
these are the options i am being given to extract all the cash from these bonds in the most tax efficient way:
1. take the 5% annual allowance across all units ( so if you've had bond for 2 years you could take 10%). This option is tax free for that amount but taking any more would incur income tax at your highest rate. Also if you only take the % you will be left with the rest sitting in a nominal interest paying account within the bond.(accruing charges?)

  1. Surrender the bond completely - crystallising the current amount in the bond ( 24.8% of deposit less EPS) which would be tax free as no gain has been made. The problem with this is what happens to our rights to future dividend payments. Prudential have said they will put a mechanism in place to ensure i get future payments but i won't trust anything until its put in writing. They would presumably have to create a new bond to deal with this.

        I have had about 3 different versions from HSBC IFA's on how to deal with this scenario which just reinforces the view they don't understand what they are selling. This mess just gets more complicated at every turn with ourselves having no control over our money. The issue of charges from life companies still remains as the longer this drags on the more they are making from our shrinking deposits.
         Other peoples info/guidance would be useful to pool our knowledge,thanks.
    
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Dividend payment to bondholders

  • AMG56
  • 13/10/08 29/05/14
  • a depositor
  • Offline
  • Wed, 30/09/2009 - 12:10

Hi all

Firstly, I've tried to post this comment on the new website but keep getting logged off when I submit it - hence my posting here .......

Has anyone yet received their dividend payment from their life company yet?

My bond is with AEGON Scottish Equitable and if I thought that they were going to treat me with the sympathy and understanding that I deserve then I'm going to wait a long time!

I had all the paperwork in place to receive the dividend as soon as it was paid on 4 September but have yet to receive a penny. I've been knocked from pillar to post between my IFA and AEGON who continually give me conflicting information. I have been told that the money is in the cash part of the bond but that they have been trying to sort out the correct way to make withdrawals. My understanding now, is that I am able to withdraw 98% of the dividend (to be withdrawn in full segments) without tax implication and that the other 2% has to remain in the bond to allow other withdrawals to be made. I have also been informed, through my IFA, that the Inland Revenue value the bond at 75% but that they will re-value it should the need arise. I have also been told that there will be no tax implication unless we are to receive more than 100% of the bond value (I, for one, would be delighted if we were to reach that position).

Why then, has it taken AEGON so long to sort this all out. They've had over 11 months to discuss the issue and make sure that everything was correct and in place to make payments as and when they received them. But, no, they didn't do anything until I queried the payment. It makes me think that they have some financial ulterior motive for doing so !!!!!!

The sting in the tail now comes because AEGON continually inform me that they still intend to make charges on the investment. I've lodged a very strong objection to this and am now trying to find out what the charges will be and how they intend to take them. Have life companies no compassion?

Finally, I hope that I receive a payment very soon as the "well has all but dried up".


dividends to bond holders

  • mr lynton
  • 27/10/08 31/05/09
  • a depositor
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  • Wed, 30/09/2009 - 15:33

Hi AMG56,
be careful here as these life comps/ ifa's seem to be making these statements up as they go along. Your advice conflicts mine that I have received from several IFA sources. Don't do anything without getting your advice in writing from IFA/ life company.
Basically if you are desperate for cash you should be able to withdraw 5% per year without any tax liability ( as we will prob never achieve 100% return) - so if you've had your bond 2 years withdraw 10% a.s.a.p.
I've been told the only other feasible option is to surrender the bond - this will get all your 24.8% back with no tax liability ( as we will never achieve 100% and above return) . I've been informed in writing that Prudential( my life co) will then forward future returns from liquidation as they arrive- without deductions/charges.
I suspect different life companies are using different methods to deal with the situation of having to allocate cash to bonds as it comes in sporadically from the liquidator - probably why they want to retain 2% of your segments.


Amg 56 bond companies charges

  • hippychickrobbed
  • 03/11/08 31/05/09
  • a depositor
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  • Wed, 30/09/2009 - 14:16

I hope you get your dividend really soon. They have no compassion these people , basically sting in the tail is an understatement I feel we paid on top to lose money here.We were even told we were protected hence thats why we agreed to these bondcharges over the yrs. Its not enough were in this distressing mess but what exactly have they done to help,us. The correct thing is to totally lift all bond charges here as they like to say this has never happened before. I wonder what can they possibly say to new customers to lure them into the bonds from hell.


Bond company charges

  • AMG56
  • 13/10/08 29/05/14
  • a depositor
  • Offline
  • Fri, 02/10/2009 - 12:37

Agree with you totally. We were also told, when we took out the bond, that we were covered and the maximum we could ever loose was 10%. We purposely put the money in a bank, as opposed to stocks and shares for that very reason. Total joke!!!! Think these companies just make it all up as they go along.


Offshore Bond Tax

  • sounfair
  • 29/01/09 31/05/09
  • a depositor
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  • Wed, 23/09/2009 - 06:54

Hi Mr L

It would appear that our previous exchanges need to be reviewed... You really need Prudential to let you know how they are allocating the dividend received across the policies within the bond and this will determine what action syou can take to minimise taxation liabilities.

Two points though:

  1. The 5% annual allowance is NOT "tax free", it is tax deferred and will come into play again on final encashment of the bond.

  2. The two options you have been given are not the only ones. As I have said before, you can encash individual policies within the bond without encashing the whole bond. Think of it as a chocolate orange - you can eat segments without eating the whole!

But, as I say above, the most appropriate route will be determined by how Prudential are able to allocate the dividend between policy segments...

You really do need advice on this (as I've said before)


surrendering bonds

  • mr lynton
  • 27/10/08 31/05/09
  • a depositor
  • Offline
  • Wed, 23/09/2009 - 09:57

thanks for your comments but:
1. tax defferred is irrelevent as we are highly unlikely to get 100% return so no gain will be made.
2. Partial encashment is not really an option as each unit (individual policy) is currently only worth 24.8% of its original value - so to get out all the current value would entail cashing in all units (in effect surrendering the bond) or to get half the cash would cash in half the units leaving you with not enough units for future encashment.


On that basis...

  • sounfair
  • 29/01/09 31/05/09
  • a depositor
  • Offline
  • Wed, 23/09/2009 - 16:30

On the basis of your first point I would agree, but that assumes that you have no other assets within the bond wrapper, which may be showing (or indeed may show) a gain...

My point was that the use of the term "tax free" regarding 5% withdrawals is incorrect, and obviously other people may well be reading this who are in a different situation to you.

From your point 2, it would appear that Prudential are applying the dividend equally across each policy segment, which I think I suggested in our previous exchanges a few weeks ago.

I;d suggest that whoever your adviser is at the moment speaks to Prudential with your authority to determine their view as to whether they are able to apply the whole dividend across a smaller number of policies.

For example, lets say the whole bond had £248,000 in it before all this blew up and that this was divided between 100 equal policy segments, each of £2,480 (we like simple maths!)

Prudential would have received a dividend of £61,504 (24.8% of £248,000).

As you say, if this is split equally across all 100 segments, each would have a current value of £6,150.40, so to access the whole dividend you would have to encash all 100 segments and the problem as to where future dividends would go would be as per your original post.

If, and I'm not sure this is possible, Prudential could allocat ethe dividend of £61,504 to just 25 of the segments, each would have a value of £2,460.16 (i.e. £61,504 / 25).

These 25 segements could then be fully surrendered and, as the cost of them was £2,480 there would be no tax payable (no gain).

The policy would then have 75 segments left (albeit each with a current value of £0) which could receive subsequent dividends.

Obviously the above ignores any charges etc...

As I said, not sure this is possible, but has to be worth investigating with Prudential...