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Top slicing changes are not retrospective

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Tax expert Tim Good has successfully challenged HMRC once again over its calculation of top slicing relief, and the FTT has agreed that the 2020 Budget changes can’t be imposed retrospectively. 

25th Feb 2022
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I spoke to Tim Good, the director of PTP Ltd and Absolute Accounting Software Ltd, about his battles with HMRC over the calculation of top slicing relief in 2019. Since then HMRC took the Mariana Silver case to the steps of the Upper Tribunal but withdrew at the last minute, leaving the FTT judgment [TC07013] to stand.

HMRC also changed the law in the March 2020 Budget, to prescribe the order in which taxpayers could allocate reliefs and allowances in their top slicing calculations. As Good discussed in May 2021 HMRC was attempting to apply this change to beneficial ordering of allowances retrospectively to 2019/20 and earlier years.     

The case of Sally Judges (as representative the late R Young) v HMRC shows that the FA 2020 changes to top slicing relief can only be applied from 11 March 2020 onwards. Tim Good represented the taxpayer at the FTT.   

Facts

Young died on 3 March 2018, and Sally Judges acts as his personal representative.

Judges prepared Young’s final tax return for 2017/18 using HMRC's self assessment calculator, but included her own calculation of the top slicing relief explained in the white space on the return.

Young’s income in that year was just under £50,000, but he also had a chargeable event gain of £232,275 from three life assurance policies, two of which were held for over 20 years. Judges calculated that top slicing relief of £50,939 was due, based on the most beneficial way of allocating Young’s personal allowance against his various sources of income.

HMRC amended the assessment charging additional tax of £44,763 for the year, on the basis that the self assessment had incorrectly calculated the amount of top slicing relief.

Arguments

Good explained that top slicing relief should be calculated as follows:

  1. Calculate the tax charge under ITA 1970, s 23, on the chargeable event gain assuming it to be the highest part of income all taxed in one year.
  2. Calculate the tax taking an annual equivalent of the gain, as if it had been realised in equal parts over each year of the policy, using the tax rates bands and full allowances for the year of the actual gain.
  3. Deduct the sum b) from the result in a) to give the top slicing relief. 

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Replies (10)

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By Paul Crowley
25th Feb 2022 15:09

Well done Tim
Recomend the Aweb any answers you tube videos
I watch them all

Thanks (1)
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By ProfessionalsUK
28th Feb 2022 10:14

Hi
A client sold a BTL in October 2021 and topslicing for the gain was undertaking so we estimated her taxable income for 21/22 and paid CGT at the specific rates above and below personal allowance - does this judgement give any opportunity to go back to HMRC and get all CGT paid at lower rate ?

Thanks (0)
Replying to ProfessionalsUK:
By Paul D Utherone
28th Feb 2022 14:52

ProfessionalsUK wrote:

Hi
A client sold a BTL in October 2021 and topslicing for the gain was undertaking so we estimated her taxable income for 21/22 and paid CGT at the specific rates above and below personal allowance - does this judgement give any opportunity to go back to HMRC and get all CGT paid at lower rate ?

Topslicing of the gain on disposal of the BTL? What am I missing?

You will presumably be going back to review the income estimates and amend your computation and the 30/60 day CGT return at some point after 5/4/2022?

Thanks (0)
Replying to Paul D Utherone:
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By ProfessionalsUK
01st Mar 2022 11:30

Thank you and yes will review income estimates - but lumbered with CGT which I'm pretty sure was not top sliced on BTL property sales in 2020 - CGT was paid within the 30/60 day time slot

Thanks (0)
Replying to Paul D Utherone:
avatar
By ProfessionalsUK
01st Mar 2022 11:30

Thank you and yes will review income estimates - but lumbered with CGT which I'm pretty sure was not top sliced on BTL property sales in 2020 - CGT was paid within the 30/60 day time slot

Thanks (0)
Replying to Paul D Utherone:
avatar
By ProfessionalsUK
01st Mar 2022 11:30

Thank you and yes will review income estimates - but lumbered with CGT which I'm pretty sure was not top sliced on BTL property sales in 2020 - CGT was paid within the 30/60 day time slot

Thanks (0)
Replying to ProfessionalsUK:
By mydoghasfleas
01st Mar 2022 14:46

It is a relief to income tax given in terms of tax. It is not a recalculation of liability. It creates a fictional tax calculation in order to determine the reduction to the income tax payable.

Your gain would come in as the top slice of the statutory calculation as a means of measuring the capital gains tax due. As the top slicing relief relieves income tax I cannot see how it could extend to capital gains tax.

Thanks (0)
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By Yorick
28th Feb 2022 11:16

I am bewildered by the statement "HMRC changed the law". Since when has HMRC been authorised to make, still less change, laws?

Thanks (0)
By mydoghasfleas
28th Feb 2022 13:43

I have had this on three occasions with HMRC. Whilst it caved on each occasion regarding the personal allowance, I could not get past the ordering. The problem is that, whilst you know you are right, the cost of proving it is prohibitively expensive for the marginal gain to the client.

As for being administratively difficlult, yes it may be but that has never stopped HMRC when the boot is on its foot. Next it will be saying the argument is invading its safe space.

Thanks (0)
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By Justin Bryant
03rd Mar 2022 15:13

Why not have a link to the case for us to read?

https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j12358/TC...

Thanks (0)