Taxation implications of partial/regular and full withdrawals from your Investment Bond
Partial/regular withdrawals - there are no immediate taxation implications for any partial withdrawals as long as no more than an annual allowance of 5% of the initial investment paid into your Bond is withdrawn each year. Any part of the 5% allowance not used in a given year is carried over to the following year until you have used up the total allowance which equals the initial investment made.
This means, for example, that if you have not made a withdrawal from your Investment Bond in the first five full years since issue, you could take up to 25% as a partial withdrawal without any immediate taxation implications.
If you choose to make a partial withdrawal in excess of the 5% annual limit this would bring about a chargeable event and that we would have to inform HM Revenue and Customs of. For higher or additional rate taxpayers this means that there may be an amount of tax to pay.
Full withdrawal - full withdrawal is always considered to be a chargeable event, so Foresters Friendly Society would have to inform HM Revenue and Customs. As growth in the Investment Bond is considered to be basic rate tax paid, there are currently no taxation implications for basic rate tax payers.
If you are a higher rate or additional rate taxpayer you will have to pay tax on a gain arising in the tax-year of full withdrawal. The rate of tax payable is the difference between the basic rate of tax and your current rate of tax. If you are currently a basic rate tax payer but the chargeable gain when added to your income takes your income into the next tax bracket, top-slicing relief is available which can reduce the tax payable.
If the Investment Bond has been taken out by joint planholders, each of them is treated as being liable for income tax in respect of half of the total chargeable gain.
It is recommended that if you are a higher or additional rate tax payer or close to the next tax bracket, you should obtain advice before making a withdrawal in excess of 5% in any year. Any tax payable depends on personal circumstances and tax rules may change.
If you receive age related personal allowance or working or child tax credit, these could be reduced when you take the proceeds from your Investment Bond.