My endowment policy is maturing soon and I'll receive a lump sum - will the taxman want a slice?
Is tax payable on maturity of my endowment policy? I sold my house in 2008 and paid the outstanding mortgage, but continued to pay into the policy.
I subsequently purchased another property and secured a low mortgage rate.
It is my intention to pay the mortgage off with the monies from the endowment policy when it matures.
A.G.
A piece of the action: Will the reader have to fork out some of their endowment policy payout to the taxman?
Philip Scott, of This is Money, replies: Popular in the 80s and 90s, an endowment policy is an investment you buy from a life assurance company.
Set up as regular savings plans, at the end of a set period, they pay out a lump sum.
Endowment policies and with-profits investments have proved to be a major disappointment and headache for lots of investors with many schemes delivering disappointing returns.
But thankfully the answer to your question is fairly straightforward as most endowment policy maturity proceeds are paid out tax-free providing they meet the ‘qualifying policy’ rules.
This is because the insurance company providing the policy has already been liable for tax within the plan.
Peter Chadborn, director at financial adviser group Plan Money explains: If, for example, your policy was taken out after 15 March 1984, the policy term is for at least 10 years, and you have paid the regular premiums for the shorter of either the first 10 years or three-quarters of the term, then you will have met the qualifying rules.
If you are in any doubt as to whether you meet the qualifying rules I would recommend seeking confirmation from the policy provider.
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