Hello, this is just on the offchance that some sad person out there can spare the time to check my figures. Not really expecting anyone to help with this but you never know :)
Or rather, check the figures of my software (Sage) which provides a figure for top slicing relief but no detailed calculation of how it is derived and I have problems manually reproducing it. My bible for this stuff is IPTM3820 to IPTM3850.
The tax year is 2013-14. Part of the problem may be that the unsliced CEGs result in complete abatement of personal allowances to £nil. The taxpayer qualifies for 75+ age relief £10660 before abatement, abated to a standard £9440 if we include the sliced CEG. Another part of the problem is that I believe that we are entitled to allocate personal allowances between income sources in such a manner as is most beneficial to the taxpayer, and I don't know how Sage manages this.
Anyway, onto the figures:
Pensions income £6339
Savings income £7336
Dividend income (gross) £6411
CEGs £127860 (BR tax at source on all)
No gift aid
There are 7 CEGs making up the £127860:
£26186 (26 years); £1007 per year
£17758 (26 years); £683 per year
£29567 (21 years); £1408 per year
£30690 (1 year); £30690 per year
£4663 (13 years); £359 per year
£6223 (7 years); £889 per year
£12773 (18 years); £710 per year
Total of yearly equivalents is £35746
Spare BR band if you allow £0 personal allowances is £11924
Sage calculates top slicing relief at £6145.66
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The "step 2" liability should not be contentious:
(£127860 - BR £11924) @ (40% - 20%) = £23187.25
Reverse engineering Sage's figure, this means that Sage determines that the Step 6 liability (IPTM3840) is
£23187.25 - £6145.66 = £17041.59
Divide this by 20% and we get to the "Step 5 total"
£17041.59 / 0.2 = £85207.95
And now divide this by the number of gains (7) to get the "Step 4 total" £12172 (losing the odd pennies)
Soooo, of the total of sliced gains £35746, Sage reckons that £12172 falls into the 40% band and the balance £23574 falls into the BR band.
But if we forget to abate any personal allowances at all, and give the full £10660, and allocate the whole PA to other income sources, I still get only £22584 available BR band to set against the sliced CEG. The discrepancy is larger if we only allow £9440 personal allowance.
Any ideas where I have gone wrong? Is Sage's figure actually correct?
With kind regards
Clint Westwood
Replies (2)
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Why are you using the number of gains?
I'm not sure why you are using by the number of gains (7) as a divisor.
"N" in this case will be £127,860 / £35,746 (Total gain divided by AEA) = 3.5769.
The full calculation that I get is this:
CEG taxed as top slice, so all other income taxed first (including divs):
Pensions + savings + dividends = £6,339 + £7,336 + £6,411 = £20,086
Basic rate band remaining = £32,010 less £20,086 = £11,924
CEGs at 40% = £127860 - £11,924 = £115,936
Step 2 = £115,936 @ (40% - 20%) = £23,187.20
AEA = £35746
AEA in higher rate band = £35,746 - £11,924 = £23,822
£23,822 @ (40% - 20%) = 4,764.40
Step 5 = £4,764.40 x 3.5769 = 17,041.78
Step 2 - Step 5 = £23,187.20 - £17,041.78 = £6,145.42
Within a pound of the Sage figure you quoted.