Top-Slicing Relief

Share

A query was recently raised which required clarification of the top-slicing relief position on non-UK life policies, with particular reference to excesses.

An excess arises under a non-qualifying life policy, such as a single premium bond, when withdrawals in a policy year exceed the cumulative unused 5% allowances for that year.

Top-slicing relief involves dividing the resulting chargeable event gain (CEG) by the number of complete years the policy has run before the CEG arises. The resulting fractional gain is used to determine whether the CEG is subject to higher and/or additional rate income tax – see here.

Under non-UK policies, for all CEGs occurring before 6 April 2013, the number of complete years for top-slicing relief could be counted from inception to the date of the CEG. With an excess, the CEG is treated as arising on the last day of the policy year.

This position changed for non-UK policies issued on or after 6 April 2013, and for non-UK policies issued before 6 April 2013 which are varied, assigned or used as security (see details below) on or after that date. For the first excess arising, the number of complete years for top-slicing relief is still measured from inception to the date of the CEG. However, for second and subsequent excesses, only the number of complete years since the last excess are used. This mirrors the position that has always applied for UK (onshore) policies.

Under paragraph 7(2) Schedule 8 Finance Act 2013, a non-UK policy issued before 6 April 2013 will be treated for top-slicing relief purposes as if it was issued on or after 6 April 2013 where:

• it is varied so as to increase the benefits payable (which includes being varied by exercise of an option conferred in the policy); or

• there has been an assignment, by way of gift or for consideration, of the whole or part of the rights under the policy to the individual liable for the tax on the excess, or the deceased in cases where personal representatives or trustees are liable for tax on a gain which had arisen to the deceased. Assignment here includes an assignment into or out of trust; or

• the whole or part of the rights under the policy become held as security for a debt of the individual or the deceased (see (b) above).

In respect of other chargeable events, such as death giving rise to the payment of benefits and full surrenders, the number of complete years for top-slicing relief purposes is always counted from inception to the date of the chargeable event for all non-UK policies.

Share

Other News

Tax Year End Planning Checklist For Individuals – 2023/24 Tax Year

As tax year end approaches, there is still time to make use of your available reliefs and allowances.

This tax year end planning checklist covers the main planning opportunities available to UK resident individuals and will hopefully help to inspire action to reduce tax for the 2023/24 tax year and to plan ahead for 2024/25.

Higher Rate Taxpaying Is A Growing Club

As tax rate band thresholds are changing, understanding the impact on high rate taxpayers and the economy is crucial.

5 Top Tips To Boost Your Pension Savings

It was recently revealed in the media that the amount we need to enjoy a ‘moderate’ retirement has increased by £8,000 per annum, a 38% increase, in just one year.