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Top Slicing Relief

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A client has employment income of £65,777 and a gain chargeable event of £36,154 on a policy held for 29 years.  I hadn't considered top slicing relief as client is a HR taxpayer but Taxcalc has top slicing relief as £5,603.22.  I've run through the calculations and still come back to zero, logically I think it's because the taxpayer would have received £500 staring rate per year (although that hasn't been around for 28 years??).  £500 x 28 (ignoring this year as it's dealt with in the comp) = £14,000 @ 40% is £5,600 so where does the £3.22 come from?  I've also considered that there has been a loss of PA this year but I can't get my head around this one.  Am I barking up the wrong tree?

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RLI
By lionofludesch
30th Sep 2019 10:05

Without top slicing relief, there would've been a loss of PA but that would only be on the top £1000 or so.

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Replying to lionofludesch:
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By Michelle333
30th Sep 2019 10:23

And this is why I can't see where the Taxcalc calculation comes from. It makes more sense that the TSR should be £1,187 @ 40%.

I've looked for an explanation of the calculation within Taxcalc but can't find anything. Are you a Taxcalc user?

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Replying to Michelle333:
RLI
By lionofludesch
30th Sep 2019 10:30

No.

Top slicing works by calculating the tax on 1/29 of the gain and multiplying it by 29, so you're right that £5600 of the relief is an extra 28 £500s at 40%.

No idea where the extra £3.22 comes from, though. Unless it's in the roundings somewhere.

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Replying to lionofludesch:
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By Michelle333
30th Sep 2019 10:37

It's one of those where I know it's probably right but I can't put it in front of the client unless I know why it's right.

Thanks for the help Lion.

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Replying to Michelle333:
RLI
By lionofludesch
30th Sep 2019 10:42

Just tell him it's in the roundings. Who cares about £3.22 anyway ? Especially when it's in his favour.

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Replying to lionofludesch:
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By Vaughan Blake1
30th Sep 2019 11:02

Don't forget HMRC are appealing HMRC v Silver so there may be a loss of PA in cases like this. Personally, I think that the FTT came to the wrong conclusion and the taxpayers appeal will be overturned.

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Replying to Vaughan Blake1:
By Tim Vane
30th Sep 2019 11:08

I doubt that taxcalc (or much other software) implements Silver yet. The calculation in this case is unlikely to be impacted either way.

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Replying to Tim Vane:
RLI
By lionofludesch
30th Sep 2019 11:14

Personal allowance should be restricted imho.

But - hey - we don't have the full numbers here so we're forced to make assumptions.

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Replying to lionofludesch:
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By Michelle333
30th Sep 2019 11:30

I suppose that the tax in question would be the £1,187 @ 40% but this could be amended if it is overturned.

Lion - Is there more info that would have meant you gave a different answer? (genuine question - sounds sarcastic when written!!)

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Replying to Michelle333:
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By lionofludesch
30th Sep 2019 11:44

Yes - where's your £1,187 come from ?

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Replying to lionofludesch:
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By Michelle333
30th Sep 2019 12:11

Total income £102,374 so PA restricted by £1,187.

I think I've been overthinking this and the £3.22 is rounding but I was worried that it was just coincidence that the TSR was so similar to the £5,600 I though it should be. It's not something that has comes up often is it (think I've seen it twice now).

Anyway, I'll stop pondering and let you get on with your day! Thanks again.

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Replying to Michelle333:
RLI
By lionofludesch
30th Sep 2019 12:23

Michelle333 wrote:

Total income £102,374 so PA restricted by £1,187.

I

Oh - right. I've got £101,931 based on your OP.

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Replying to lionofludesch:
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By Michelle333
30th Sep 2019 12:34

Oh you are quite right you don't have all the info!! £443 benefits so employment income is actually £66,220.

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Replying to Tim Vane:
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By Vaughan Blake1
30th Sep 2019 12:16

IRIS takes HMRC's view of the Silver case. This suited me as it is a deceased client and I wanted to take the worst case scenario.

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By unearned luck
03rd Oct 2019 01:32

"IRIS takes HMRC's view of the Silver case. This suited me as it is a deceased client and I wanted to take the worst case scenario."

OK. What happens if the Silver case concludes in the taxpayer's favour and by then it is more than four years after the end of the relevant year of assessment? Might not your client's executors sue you for not making an amendment/repayment claim based on Silver? I suggest you mention this to your insurer.

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Replying to Vaughan Blake1:
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By unearned luck
03rd Oct 2019 01:22

Please say where, in your opinion, the FTT went astray?

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Tim Good profile image
By Tim Good
02nd Oct 2019 17:19

The HMRC calculator (and as far as I know every commercial tax return software package) calculates the top slicing relief as £5,600.
The correct figure (according to Judge Mosedale in Silver - and me) is £7,031.
So the estate is being overcharged by £1,431.
HMRC will not accept that they are wrong until the litigation is completed. The Upper Tribunal have aked for availability dates from February to May 2020.
See also https://www.accountingweb.co.uk/tax/hmrc-policy/hmrc-digs-in-over-top-sl....

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