Chargeable Events on Foreign Policies

Chargeable Events on Foreign Policies

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A client has surrendered a policy with Skandia International based in the Isle of Man. The total gain is £11,857 and the policy ran for seven years. The client is not a higher rate tax payer and because it is a foreign policy there is no deemed income tax. I have included the whole of the gain on the client's Return but the Financial Adviser is insisting that top slicing relief applies and that our client should only pay income tax on one seventh of the gain. This cannot be right or can it?

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By RetiredTax
23rd May 2013 14:58

Top Slicing

Please see HMRC Manual ref :~

IPTM3820 - Chargeable events: top slicing relief: general

The approach of the chargeable event regime, which is to charge on a realisations rather than accruals basis, may benefit some individuals. This could, for example, be so if the charge on gains is deferred until after retirement when income is likely to be lower than previously. But many individual taxpayers will suffer disadvantage by being charged in a single year on gains that have accrued over a period. Top slicing relief may assist. Its effect is to reduce in some circumstances the rate of tax charged on the gain by applying a spreading mechanism.

The relief cannot assist taxpayers already liable to tax at the higher rate before the chargeable event gain is added to their income.

There is no top slicing in computing income for the purposes of calculating entitlement to age- related allowances, or child or working tax credits. The full amount of the gain is included for these purposes.

Special rules apply to ‘foreign policies’.

I can't however quickly find what those rules are. It may be worth writing to HMRC referring to this and asking.

I hope this helps

 

 

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By vince8
23rd May 2013 18:00

IPTM 3700

Have a look starting here, I have not researched it.

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By mhtax
26th May 2013 16:39

Top Slicing does not affect the basic liability

Top slicing merely reduces any higher rate liability where the only reason for that liability is a chargeable event. The full amount of basic rate liability cannot be reduced with this calculation

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Replying to seonaid anderson:
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By pat27
29th May 2013 09:42

Thanks everybody

 The Financial Adviser did his own research after he spoke to me and has now agreed my treatment is correct.

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