Purchased Life Annuity (PLA) Tax Calculator

A PLA is an annuity bought with non-pension savings (e.g. cash, ISA proceeds, inheritance). Unlike pension annuities, only part of each payment is taxable — the capital repayment element is tax-free under ITTOIA 2005 Part 4 Chapter 7.

The capital element = original investment ÷ HMRC life expectancy factor. HMRC uses Government Actuary's Department tables based on age and gender at purchase. The annuity provider provides a 'certificate of purchase' showing the fixed capital and interest elements.

Yes. Once the capital element is set, it remains fixed throughout the annuity — even if you outlive the original life expectancy. This means longer-living annuitants continue to receive the full tax-free capital element each year.

Pension annuities (bought with pension funds) are taxed as pension income — 100% taxable. PLAs (bought with non-pension savings) are partially tax-free. If you have both pension and non-pension savings, a PLA can be more tax-efficient for income planning.

No. The PLA interest element is treated as annuity income (not savings income), so the Personal Savings Allowance (PSA) does not apply. It is taxed as non-savings income at your marginal rate.

An immediate needs annuity (care fees annuity) is a PLA variant where payments go directly to a registered care provider — in that case the payments are entirely tax-free. Standard PLAs have partially taxable interest elements.

The annuity provider deducts income tax at source from the interest element (using your tax code). You report the full gross interest element on your Self Assessment return. The capital element is ignored for income tax.

For higher-rate taxpayers, the partially tax-free nature of PLAs is advantageous. Compared to holding savings in a bank account (100% taxable), a PLA converts part of the return to capital repayment (tax-free), reducing the effective tax rate on income received.