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GIB income on my tax return?

Saving | GIBs Helpful? 3

Asked by KenGoodwinPL, submitted 22 January 2010.

Open Quote I have a GIB from Abbey (Phoenix insurance) and I am filling in my self assessment on line. I have detailed all the answers to the various building society accounts and I have not found anywhere to put the income received from the GIB.

I have tried phoning tax people and they do not know answer but said they would ring back but they never did. I have visited by local tax office twice but no help. Very pleasant people but unable to help in any specific way. I am 78 years old so that perhaps explains why I am so thick.
End Quote

Answered by Justin on 23 January 2010

Sounds like it’s the tax office being thick, not you!

If the income from your guaranteed income bond (GIB) is less than 5% each year then you don’t have to include it on your tax return until the year of maturity.

The reason for this is the special way that insurance company investment bonds are taxed. You can withdraw up to 5% of your original investment each year without having to pay any tax, or include it on your tax return – hence it won’t affect your age-related personal income tax allowance.

But the withdrawals are not tax-free. They’ve already been taxed at basic rate and, depending on your overall income, you may have to pay additional tax on the sum of the 5% withdrawals plus any gains when the investment matures – using a calculation called ‘top-slicing’. Worse still, the overall sum is notionally added to your income, which could affect your age-related allowance even if you have no additional tax to pay on the profit.

If the income is greater than 5% then the insurer should send you a ‘chargeable event’ certificate for the excess ‘gain’. The gain details will need to be entered on your tax return in boxes 4-7 in the ‘Other UK Income’ section of the ‘Additional Information’ section (form SA101) of the tax return.

Provided you’re a basic rate taxpayer then you probably won’t have any extra tax to pay on the excess unless it pushes you into the higher rate band. Higher rate taxpayers have to pay the difference, currently 20%.

If you want to read more about top-slicing (drink a strong coffee first to keep you awake!) then read our Guaranteed Income Bond page.

You could also use our GIB Tax calculator to take care of all the number crunching.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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