In the course notes a few different methods for taxing benefits from life insurance policies are mentioned. One was capital gains tax rate might be used. Would capital gains tax apply to Single Premium bonds e.g. investment bonds? I was just trying to think of an example when this rate might be used. Thank you
I don't think we can say that it would apply to single premium bonds, as obviously the actual rules would depend on jurisdiction (and the Core Reading doesn't go into any further detail as to where such a rate might be used, so we don't need to know for SA2). However, I agree that if such a rate were to be used then investment bonds would be a sensible place to apply it, to ensure that there is a consistency in taxation between such bonds (as sold by life insurance companies) and equivalent investment vehicles sold by other providers (to which capital gains tax would presumably also be applied). Indeed, the introduction of a flat 18% rate of capital gains tax in the UK in 2008 proved to be very problematic for the sales of investment bonds by life insurers, as for higher-rate tax payers these became significantly less tax-efficient (as tax was being incurred on investment gains at their much higher marginal rate of income tax) than holding investments through other vehicles (where tax on gains would now only be incurred at 18%).
