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How Is A Purchased Life Annuity Product Taxed?

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By Author: Kevins Stelfox
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A purchased life annuity is one that you buy from your own funds and not from a pension fund.This money could be currently on deposit in the bank or in a building society, it could be the proceeds from a recent house sale or it could be money you have inherited form a deceased relative.The only important thing is that it is not from a registered pension scheme as this is called a compulsory purchase annuity.While a purchased life annuity will give you an income for life as a pension annuity would, this is not a pension annuity - one you buy with money from your pension pot.

As with all conventional annuities you have to decide whether or not you want your income to rise,and whether or not you want the annuity to just cover you, or a partner as well.

Another option that is available with a purchased life annuity is the option to guarantee your capital,where your capital is fully protected rather than just a guarantee.Taking one of these out means that when you die,the remaining annuity money is repaid to your estate and so can be passed to your beneficiaries. However, if the gross income paid out is greater than ...
... the amount invested, your beneficiaries receive nothing.

Tax on purchased life annuity products

Only part of the income from a purchased life annuity is taxable. This is because the UK tax system treats part of the return paid to you as a repayment of the lump sum you invested.

The taxable part of the income from a purchased life annuity is taxed at 20% - this is usually deducted before you get it. Basic-rate taxpayers have no more tax to pay on the annuity income, but higher-rate taxpayers must pay a further 20%.

Non-taxpayers can either have the annuity's taxable part paid gross or reclaim the tax by filling in form R89 from the annuity provider or your local tax office.

Based in the UK, Retirement Solutions are Independent Financial Advisers (IFA) who can find you the best annuity rates using their unique Annuity Calculator and provide whole of market independent Annuity Advice on the best purchased life annuity rates.

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