My head is starting to hurt. All I can say is thank the lord I am not taking exams this year which involve a personal tax calc.
So ,,,
You have two income sources in 2016-17;
Salary £42000 (tax irrelevant but say £7000).
Chargeable event gain on partial surrender of UK life policy, £20000 proceeds, 22 year old policy (Initial premium £10K) gain taxed at source at BR.
My software comes up with a gross liability of £6100, net refund of £900 after taking off the PAYE.
If you exclude the CEG from the income, he ends up with a gross liability of £6200 (20% of salary £42K lesss PA £11K). Net refund £800.
So the effect of including BR taxed income in the form of a CEG, on someone who is already (at least) a BR taxpayer, gives rise to a refund of an extra £100 that can only have come out of the tax deemed to have been deducted at source on the CEG. Leaving aside the logic of such an outcome, I thought that this was non-refundable tax??
Side issue, the software allocates £500 personal savings allowance to the CEG. I trust this is correct? Probably connected with the above £100 somehow.
Anyway out of curiosity I shoved it up the line to our software supplier support team, with a twinge of guilt about wasting their time, and they insist that this is all kosher.
With kind regards
Clint Westwood
Replies (5)
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It's because top-slicing relief is based on a simpler tax system. It is a straight add-back of 20% on the amounts that would be taxed at higher rates were it not for top-slicing relief. It's not taking into account that any amount is being charged at nil.
You get the same effect when you have gift aid payments that extend the basic rate band. Top-slicing relief calculates expecting the normal basic rate band. Chargeable event gain can therefore end up lowering the tax bill in a similar fashion.
Is this one of the 3 new exclusions for electronic filing I understand HMRC have issued today? It's not 50 on the list - https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil... - but they seem to be having problems with interactions this year.
Your 3rd party software has to follow the HMRC calculation to validate at the Gateway, but there a issues arising for 2016-17