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Help with understanding top slicing relief

How is the number of years calculated when there have been additional payments into the bond

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So I've been asked by someone how top slicing relief works with an onshore bond.

I'm fairly ok with understanding the step calculation specified by HMRC which would provide relief to someone who would be taken into higher tax brackets by assessing the whole gain.

However, after making an initial investment some years ago, this person has made two subsequent, additional payments into the bond in more recent years. How would you calculate the number of years over which to slice for TSR?

Thanks in advance for your advice .

 

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By richard thomas
31st Oct 2020 12:12

I'd start by reading the law in s 535 to 537 ITTOIA, where I'd find out that the additional premiums are immaterial - the denominator for finding the annual equivalent is the number of whole years the policy has run.

I'd then check that this is what it says in HMRC's manual IPTM (the income tax, not the IPT one), one of the two manuals I implicitly trust because I worked with the man who wrote it. IPTM 3830 also makes no mention of additional premiums.

If you think about it this must be right. Not every policy liable to income tax is a single premium policy - many life policies are annual premium policies, so it would become a nightmare to recalculate the annual equivalent by reference to the number of years from each premium payment.

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By Shropshire Saddler
31st Oct 2020 12:24

Thanks for that. I'll read up as suggested. Using a flowchart that I'd found on a helpful site, I thought this was perhaps the case but wanted some reassurance. Many thanks for replying.

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