Endowment Policies

[Guest Chappers]

Hi,

First post and it has to be a question:cute:

We're relocationg to Adelaide in May, and have 3 endowment policies which will mature in 2011. Should I cash them in at a reduced value, or let them mature and pay tax on them in 2001?

Anyone know what tax I will pay, or any financial wizards out there want to sort me out?!?!?

Cheers in advance.

[Guest Guest75]

Hmmm,,,,,,,, tough call?

 

You would find the extra cash handy here,perhaps bringing the mortgage down and so on will save more than you make.

Endowments have not fared well over the last few years so will they increase much more.

 

Factor in the exchange rate as well (which is poorish at the moment) - will it improve in the next few years???

 

We cashed in some financial stuff just to give us the biggest financial raft possible here.

 

Just cashed in another type of investment a while back and now I'm back in the boat waiting for the exchange rate to rise!!

 

Ya can't win!!!:goofy::wacko:

[Guest alibongo]

hi cant answer your question but we are in the samesituation Ours are also due in 2011 and were planning on letting them run till then..We are going to expo next month so may be able to get some advice from the banking companies then?? hopefully anyway. will watch this thread to see if can get more info..thanks for asking the question..

 

Ali

[Guest Nicky&Andy]

:nah:hard to believe, mine just paid out after 10yrs, worked out what i had paid in and only ended up with £200. extra. ok its a good way of saving, probably better off in an isa, oh has one with stll five yrs to go, will probally cash in to save on the agro

 

only going by my experience with my policy maybe you could get some financial advice but watch out they could cost the money youve made

 

hope you get the answer you are looking for

 

nicky

[Hayshake]

As an ex financial advisor, but now in Aus, I also have an endowment maturing this year, and going by my last bonus statement, should make a tidy profit. having said that it has been running for about 35 years.

Policies when they mature, (pay out) have no liability to tax. They also have what are known as reversionary bonuses and final bonuses applied to them. The reversionary bonuses are allocated to the policy each year, dependant on the profits of the company, (many of which have been poor in recent years) and cannot be taken away, unless the policy is cashed in early. The final bonus is only payable at maturity, and again is dependant on the profits of the company.

 

My advice would be to apply to your Insurance company for a surrender value, and also the anticipated maturity value, so that you have full understanding of how you stand. Once you have these, if you decide to surrender, check out the options to sell your policy to a trader. (These are often listed in the financial pages of newspapers) who may be able to offer more money. The policies are then bought by investors, who hope to gain the rewards of holding on until maturity.

Finally, if you decide to keep them, please make sure your financial institution are advised an address to send correspondence to, as they will certainly be searching for you when the policy matures.

 

Hope this helps.

[Guest Guzzler&Sas]

Hi,

 

I am sure that if you decide to keep your policies going in the UK you will have to pay tax to the Oz goverment on any growth they make annually from when you get here,

 

Guzzler

[Guest Chappers]

Hi guys, thanks for the replies.

We stand to loose about £6.5K if we cash in now, even with the poor performance, I just need to know what percentage we will be taxed after we move and see if this is greater or lees than cashing in.

I'll let you know what we find out!

See you all soon.

[Guest Beth&Martin]

This is something I have been giving some thought to as well. I have 2 endowment policies that mature soon, one in 2012 and one in 2013. I am not very "up" on financial investments and how they work , so, though I will lose money, I have decided to cash them in. I want to get together as much money as I can to take to Oz to give us, as Tyke says, that financial raft when I am there. We are going to Adelaide on a SIR 475 Provisional visa so we need all the financial support we can get as you are not entitled to much (if anything) on this visa.

 

With that in mind I looked on the internet for companies that buy endowment policies, as I understand they may give you more than the surrender value, and found the following information

 

http://news.bbc.co.uk/1/hi/business/3038462.stm

http://www.apmm.org

 

I'm going to contact APMM and hopefully get a reasonable price

[Guest the4hopes]

We were offered about £2000 more from AAP than surrender value, the offer has gone up about £200 since November. Our policy doesn't mature for another 10 years so we will sell it now.

Laura x

[Guest smit]

very awkward position. I believe that if youve had them running for ten years or more , with a life cover element to it , then it is tax free. Dont take this as gospel, im not a financial advisor , and ask this question to one....or direct to the ATO....................................and let me know if you get a definate answer:err:. anything before the ten years, tax is payable on the growth. But as said before , source proper advice, its a tricky subject.

[Guest Guzzler&Sas]

Hi,

 

Mine had been running for about 20 years and I was advised I would have to pay tax on any growth,

 

Guzzler

[Andrew from Vista Financial]

Hi guys,

 

If you register as a resident for tax purposes in Australia then any investments that you have abroad will be treated as Foreign Investments including Pensions and Endowments. Therefore you will have to pay Australian income tax on any growth that these investments make each Australian tax year at your marginal rate of tax.

 

If you are not registering as a Tax resident of Australia then you do not have to declare your foreign investments/income but will have to pay tax in your country of tax residence on these. However you will have to pay non resident tax on any Australian earned income and this is a much higher rate than if you were a tax resident.

 

Andy.

[Guest smit]

Hi guys,

 

If you register as a resident for tax purposes in Australia then any investments that you have abroad will be treated as Foreign Investments including Pensions and Endowments. Therefore you will have to pay Australian income tax on any growth that these investments make each Australian tax year at your marginal rate of tax!

 

If you are not registering as a Tax resident of Australia then you do not have to declare your foreign investments/income but will have to pay tax in your country of tax residence on these. However you will have to pay non resident tax on any Australian earned income and this is a much higher rate than if you were a tax resident.

 

Andy.

How sure are you of this . I sort of found out throgh the ATO , that if you had a policy running for over 10 years with a life cover element ...................then this would be tax exempt!. There is a big problem with ATO/DIMIA in finding out the correct info.......................because they dont know:arghh:.........ive been trying to find this info for 4 years , and are still not convinced either way

[Guest morgie@51]

How sure are you of this . I sort of found out throgh the ATO , that if you had a policy running for over 10 years with a life cover element ...................then this would be tax exempt!. There is a big problem with ATO/DIMIA in finding out the correct info.......................because they dont know:arghh:.........ive been trying to find this info for 4 years , and are still not convinced either way

 

Before I came out few weeks ago I got some tax advice from Alan Collett, who I think a lot of people will recognise. We have an endowment and his advice was that on becoming tax resident in Australia the increase in value from the moment you enter the country will be taxable.

 

He didn't make any reference to there being any different treatment for policies running for different timeframes. If there was such a treatment that he's unaware of I'd be delighted because our is over 10 years old.

[Andrew from Vista Financial]

The 10 year rule is regarding Australian Investment Bonds which are tax free if invested for 10+ years and subject to certain tax contribution conditions.

 

The Uk rule regarding endowments is that you do not pay income tax:

• when the policy matures;
  
• if you die before it matures; or
  
• if you cash-in the policy before the end of the term, as long as you pay your premiums for at least three-quarters of the term (for example, seven and a half years for a policy with a ten year term).
  

This includes friendly society 'tax-exempt' plans. In other circumstances you might have to pay tax.

 

As a tax resident of Australia your worldwide income is assessable in Australian and growth on foreign investments are taxed each tax year whether you have received that growth or not. If you have paid tax on any of these foreign investments then you should be able to offset that with a tax credit.

 

There are certain exemptions on some types and amounts of pensions.

 

So therefore your Endowment if you are Australian tax resident should be assessable.

 

I give you this information as a Financial Advisor not a Tax Advisor!!

 

You say you have spoken to the ATO, the only chance I think you may have is to convince the ATO that they take the tax paid from within the fund (usually corporations tax on these style of investment) as a tax credit. Not sure they will though.

 

I will try to find out this information!

 

Andy

[Andrew from Vista Financial]

Ok, it is not simply a case of whether the endowment policy is tax free. Generally an endowment policy falls within a FLP (Foreign Life Policy) under a FIF (Foreign Investment Fund) ruling, meaning generally as a tax resident of Australia is assessable.

 

However this is not black and white, exemptions can apply dependant upon certain factors, i.e, balance, residency, ownership other assets etc.

 

So it really is a case of individual circumstances.

[Guest Nick11]

Ok, it is not simply a case of whether the endowment policy is tax free. Generally an endowment policy falls within a FLP (Foreign Life Policy) under a FIF (Foreign Investment Fund) ruling, meaning generally as a tax resident of Australia is assessable.

 

However this is not black and white, exemptions can apply dependant upon certain factors, i.e, balance, residency, ownership other assets etc.

 

So it really is a case of individual circumstances.

 

Oh crickey - I'm more confused than ever now.

Ours are due to mature in a few years - think I'll change it over in the uk and bring in $9,999 in a suitcase over several years!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[Andrew from Vista Financial]

I know, it does seem a bit like that !

 

Your tax Advisor/Accountant should be able to clarify your tax position on this.

 

It can be a fairly straight situation for some people.