A life assurance tracker bond may be unsuitable for Paul and Angie, a couple in their late 60s, because which statement is true?

• A. the bonus payable at maturity will be liable to USC.
• B. they will have to include any gain they make on the investment in their tax returns.
• C. they will not be able to reclaim any exit tax deducted from a bonus payable at maturity.
• D. the bonus payable at maturity will be liable to DIRT.

Answer: (C)

The key idea is how tax works when this policy exits. With a life assurance tracker bond, the maturity bonus can be treated as a gain, and when the policy ends you may be charged an exit tax on that gain. That exit tax is typically deducted by the insurer from the maturity payout and is not reclaimable later from Revenue. So the net amount Paul and Angie receive at maturity can be reduced by this tax, which is especially important for retirees who are relying on that payout. The other tax points mentioned (USC or DIRT) aren’t the main issue here, and gains aren’t simply something you declare separately in a tax return in the same way. Therefore, the statement that the exit tax deducted from a maturity bonus cannot be reclaimed is the true consideration, making the tracker bond potentially unsuitable for them.