Natural Income/Distributions from Investment Bond

Just discussing this in the office and a possible client has been taking natural income/distributions from the L&G Distribution fund for around 15 years. Bond is 17 years old and looking at calcs, but I just had a question as to whether the natural income paid from the fund actually uses any of the 5% allowance up for bond calculation purposes?

Comments

  • JonaJona Member

    If the fund is in a bond wrapper then I would say yes.

    The tax treatment does not care on whether the "income" is natural or not - under a bond it's deemed as a distribution and subject to the chargeable event regime.

    I would have thought......?

  • NathNath Member

    Exactly what I would have thought and although it distinguishes between the 2 incomes in this guide it doesn't go any further from a tax perspective https://www.legalandgeneral.com/files/library/investments/product-information/portfolio-bond-product-guide.pdf

  • NathNath Member

    Other problem is that if they have been taking natural income via the fund and with 17 years growth, this could be way more than the 5% allowance form original investment as well (although it says in above guide max 7.5% still). Just a little confused by it and L&G are not helpful (as we all know!)

  • It's all money out, subject to 5% and chargeable event rules.

    I did a big tranche of something similar for an adviser who had some legacy Prudential a few years ago. Although they'd not been taking natural income, the original adviser had set them up to pay 5% pa of the VALUE of the bond, so basically exceeding the 5% allowance from the outset. I still have nightmares about it!

    Benjamin Fabi FPFS
    Chartered Financial Planner

    http://twitter.com/benjaminfabi 
  • NathNath Member

    Cheers all. I thought it must be, however, L&G are also saying they can't provide a transaction history (sorry what???) which makes things fun.....glad i'm not the paraplanner on this one, however, first glance I reckon even if it was 100% on full bond (quite a small value really) with no top slicing etc it would still fall fully within BRT etc.

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