I have an aviva with profits endwment saving policy with 8 months to run until maturity.If I surrender early will it be subject to tax?
Assuming that the policy was set up as a qualifying policy (virtually all endowments were) and has been running for more than 10 years and nothing has been done to the policy to affect its qualifying policy status, then there will be no tax to pay at all.
Qualifying policy rules are complicated but Aviva will be able to tell you if it is a qualifying policy or not. | 10.08.11 @ 15:09
Further to James' correct piece I would add - why on earth would you seek to surrender with just eight months to go ? Presumably this investment plan has run for at least nine years now - waiting another couple of months should yield the full plan value - importantly including all the valuable final bonuses on your plan not normally credited (or earned) until maturity.
Your life cover element will also continue for a further nine months. Ok you will have to pay eight more premiums too but best value is likely to come to those who wait. If you really, really need the cash due to ill-heath, redundancy or other good reasons then it is vital you consider all angles and get Aviva to quote each of your choices. These are:-
1) getting a surrender value - likely to be lower than keeping your plan for its full duration due to reductions in final bonus and/or early surrender charges being applied.
2) With Profits are also subject to Market value adjustments - if being applied these could reduce the overall payout value by 10% or more so be sure to check
3) by contrast there will be no market value adjustment or similar reduction in your plans value if kept to maturity. Indeed a likely guaranteed minimum plan value may well apply
4) though less applicable with only eight months to run, see if there is a market to buy your plan from you - a good IFA will help canvass possible purchasers. Any plan sale should achieve a better return for you than surrendering back to Aviva. You wouldn't do it otherwise! Strong providers like Aviva, Prudential and Friends Provident combined with With Profit policies often attract better offers from potential endowment buyers than surrendering. However with just eight months to maturity it is unlikely this will enable a purchaser to make much if any profit on the eventual plan maturity date as the difference between your plans current value and its maturity value less than a year later will be relatively modest. However other readers note - ALWAYS EXPLORE THE possible SALE angle before surrendering a with profits endowment.
5) Another option would be to stop paying premiums but leave your funds invested for the last months. Called making your plan paid up. The idea being that you save the monthly outlay in plan premiums (but probably lose the life cover and any critical illness cover too) but your plans full value remains invested and could work well for you in any market upturn over the period. You should also get your plans terminal maturity bonuses and the protection of any guaranteed plan maturity value.
A plan not held to maturity may well not enjoy the peace of mind of any guaranteed maturity value otherwise applicable if the plan were held to maturity. Besides checking out the above points you therefore really need to ask a lot of questions of Aviva before instructing any surrender as the monetary consequences of getting this wrong could be very costly - for the sake of just eight months.
Hope this helps. If you are desperate then naturally taking the cash may be your only option but if it is world stock markets spooking you bear in mind that With Profits funds have been so popular because they smooth out market volatility and give rewards closer to the averaged you actually saw over the duration of your endowment savings arrangement – so there should be no noticeable falls - indeed more likely the addition of maturity bonuses to worry about
| 11.04.11 @ 14:55
All good points Richard. I was merely limiting myself to answering the actual question asked, which was about tax treatment, not about the merits or otherwise of surrendering early. Thanks for adding to and expanding on my answer to cover the issues around an early surrender. | 11.04.11 @ 15:30
No problem James, see you at another coaching Workshop perhaps? | 11.04.11 @ 16:37
in addition to all the comments above, sometimes there are very good reasons for early surrender.
it has been known for insurers to "deliberately" reduce their terminal bonus rates because they know they are about to get a large batch of maturities and it will save them money.
i would want to check:
when does aviva next publish the bonus rates?
does the plan mature after that date?
if it does, there might (emphasise might) be a better surrender value now as many policies will still pay a final bonus even when surrendered during the last year.
the key is to know the above dates and compare the current surrender value with the current calculated maturity value and then analyse the current bonus rates, premiums yet to be paid, difference in final values and.....
why would you be surrendering now? is the money needed for an event now and you could justify taking the money or are you just being naturally curious?
this is a decision that would be best guided with a proper financial analysis and with all best intentions, its difficult to get totally accurate details in this type of forum but at least it points you towards the merit of getting in touch with a local IFA. | 11.19.11 @ 15:23
i have an endowment mortgage and part repayment mortgage My endowment part finishes in 5 months time and my repayment part finishes in12 months time due to moving home 3 times the repayment side increased a few months at a time. I am told by aviva that i have a short fall could i remorgage for that short fall(approx £10,000) and add it on to the remaining repayment amount (approx £1,500) and add a few years on to make it cheaper | 01.12.12 @ 20:55
yes, you should be able to do this. you wont need to remortgage as its unlikely another lender would be interested in acquiring such a small balance.
i would at first approach your current lender, explain the situation and ask them to take steps to convert part of the endowment linked portion to repayment.
they will want to know how long to set the term for, most lenders will want the loan cleared before retirement but if you can tell them how much per month you can afford, they will work out the term it would take (by working backwards).
there might be a small admin fee from them to convert the repayment method but on average it shouldnt be more than £100. you could also find out what their reversion rate would be if you are currently in a deal. some lenders still have good standard rates depending on when you applied for the loan; eg nationwide have an svr as low as 2% over base rate (base rate now is 0.5%) but for new borrowers - or those that take a new deal with them, it would be 4%. so you might already have the right interest rate deal and just need to amend the structure of the loan.
be prepared, they might want income evidence from you as you wish to extend the term and they will consider your account conduct when deciding to help. you really should contact them sooner than later just in case they say no and will still expect repayment on the dates you mention.
if you have any follow up questions, feel free to get in touch.
firstname.lastname@example.org | 01.12.12 @ 22:05
Darren may be right, but it will depend on how old you are at the end of the time that you propose to extended the mortgage by. Almost all lenders now require that the mortgage be repaid in full before your normal retirement age, or that you show where the ongoing income is going to come from to service a mortgage that runs past your retirement age. | 04.23.12 @ 17:30