Top slicing relief

Top slicing relief

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Hi all

Ok, just when I thought I understood top slicing...

I get that TSR means you get relief if you are only paying HR tax because you are getting everything at once, so if you wouldn't after spreading it over, say, 20 years, you don't.

So if you exceed the BRB by £5,000 with a £20,000 gain, over a 20 year policy, you are all square (as your income level is now £14,000 under the band, so no higher rate tax, and nothing times 20 is nothing).  In my example I'd expect £1,000 of relief to cover the £1,000 of extra tax I (almost) had to pay.

But say I make a charitable donation of £800.  The BRB extends by £1,000, so now I pay £800 of higher rate tax on the £4,000 still sticking out into higher rate band.  Jolly good, so top slicing relief will be £80-what, it's £1,000 still?  At least according to my software.

That seems weird to me, I'm being put £200 in 'profit', rather than merely being brought back to even stevens.  I suppose first question is, is that right?  It seems generous.

Then question 2 would be, why isn't it as generous as I think it is (aka, 'what am I missing?')?

Replies (5)

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By K81
25th Aug 2015 16:32

not included

Gift Aid payments are not taken into account for top slicing relief calculations.

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Stepurhan
By stepurhan
25th Aug 2015 16:56

Had same problem

Back in 2012.

Didn't get any answers then, but I did manage to pin down separately that my interpretation was correct. As K81 has already said, the top slicing relief calculation always uses the standard basic rate band. A top slicing gain with Gift Aid will lower your tax bill in these circumstances.

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Replying to Cheshire:
Quack
By Constantly Confused
26th Aug 2015 09:19

Thanks both

stepurhan wrote:

Back in 2012.

Didn't get any answers then, but I did manage to pin down separately that my interpretation was correct. As K81 has already said, the top slicing relief calculation always uses the standard basic rate band. A top slicing gain with Gift Aid will lower your tax bill in these circumstances.

Wow, so HMRC will actually give you money for making a gain and donating money to charity?  That seems very un-HMRC like :)

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Stepurhan
By stepurhan
26th Aug 2015 09:37

Poor legislation

HMRC don't have a choice. The legislation is written that way.

Arguably it is poorly written legislation, as that presumably wasn't the intention when it was written. However, because it requires a fairly specific set of circumstances, and the amount of tax involved is generally quite small, I can only assume they can't be bothered to fix it.

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Replying to Justin Bryant:
Quack
By Constantly Confused
26th Aug 2015 09:45

Fair enough!

stepurhan wrote:

HMRC don't have a choice. The legislation is written that way.

Arguably it is poorly written legislation, as that presumably wasn't the intention when it was written. However, because it requires a fairly specific set of circumstances, and the amount of tax involved is generally quite small, I can only assume they can't be bothered to fix it.

I'm not looking gratuitous equines in the primary facial opening, just so long as my software isn't being a goose and I can at least get my head around why it is doing the 'unexpected' in case I'm asked by those higher up the chain.

Thanks all!

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