Top slicing relief: calculation
Chargeable event gains are treated as the top slice of total income. Where an individual has more than one gain assessable for the same tax year, the gains are aggregated. If a policy has given rise to deficiency relief for that tax year, see IPTM3860, the relief is deducted in calculating the aggregate.
For the purpose of determining total income, income arising from the following items is ignored
- premiums on leases
- employment termination payments.
The key to the calculation is to determine a fraction of the gain, or aggregated gains, by dividing it by N, where this is the number of complete years as follows
- on termination of ownership of the policy by death, maturity, complete surrender or assignment, the number of complete years from issue of the policy to that event
- where the event is an ‘excess event’, see IPTM3555, on a part surrender or a part assignment and there has been no previous ‘excess event’, the number of complete years from issue of the policy to that event
- where the event is an ‘excess event’ on a part surrender or a part assignment and there has been a previous ‘excess event’ in relation to the policy or contract, the number of complete years since the last event to the current one.
If, however, the gain is from a foreign life insurance or foreign capital redemption policy, see IPTM3330, then
- N is always the number of complete years from the issue of the policy, but
- N is reduced by the number of complete years for which the policyholder was not resident in the UK, see IPTM3700 and the example at IPTM3740.
The use of the fraction is explained at IPTM3840.
N cannot be reduced, in any of the above circumstances, to less than 1.
No top slicing relief is available for the annual gains that arise on ‘personal portfolio bond events’, see IPTM3650. Where such a gain arises, the ‘number of complete years’ entered on the tax return should be 1 to ensure that in practice no top-slicing relief is given on the gain. This is the figure that should have been shown by the insurer on the chargeable event certificate, see IPTM7165 and IPTM7130.
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