According to this website: http://www.pensionsadvisoryservice....a-pension/pensions-and-tax/tax-on-investments Pension funds grow tax-free until benefits are withdrawn. However, pensions business is non-BLAGAB, which is liable to corporation tax on its trading profits - which includes investment income. Does that mean that although investment income tax is not charged in the hands of the policyholder, the investment income is still taxed, but just as corporate profits?
Yes. We can consider this tax as falling on the shareholders. Keep in mind too that the Core Reading tells us that non-BLAGAB profits would be expected to be 0 for a mutual. Best wishes Lynn
Is this tax paid by the company expected to be less than tax paid by the individual if s/he just put the money into a savings account? (due to tax rates / investment income offset but expenses etc.)
I'd think of the comparison as something a bit more messy (sorry!): Individual puts money into a savings account: potentially has to pay tax on interest. May / may not have to pay charges. Individual puts money into a pension: no policyholder tax. Will have to pay charges (which will have been set to make an acceptable after-tax profit for shareholders)
Thanks! Just to clarify, on the CA1 Flashcard 7 of Chapter 3, it says that 'In the UK, pension contributions are usually tax-free, investment returns on accumulating pension funds are not taxed, but retirement proceeds are taxed'. So in what way is the investment returns tax free if the returns are still taxed as a non-BLAGAB fund?
Hello I know it sounds strange, but it's because it's not the investment returns that taxed in the non-BLAGAB fund. It's the shreaholder profits that are taxed. Imagine a UL policy. All the investment return directly increases the size of the unit funds. So, in the profit formula, the investment return would be offset by the increase in reserves. So, no tax would be payable. Hope this helps Lynn
