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Exclusion 81 2017/18 :Top Slicing Relief

Article ID: 2969
Last updated: 11 Dec, 2019

When an individual has a chargeable event gain in a year, Top Slicing Relief (TSR) is applied to the gain. TSR requires two calculations:

  1. The individual's liability to income tax on chargeable event gains arising in the year
  2. The individual's liability on the annual equivalent (gain divided by the number of years the policy was held (n)). The result is multiplied by n. Top Slicing Relief is the difference between the two resulting figures.

Example 1:

Employment Income EMP1 £30,000, (tax EMP2 £3,700)

Chargeable Event Gain AOI4 £70,000 (AOI5 = 5) = Total Income £100,000 (Personal allowance £11,500).

For 2017/18 the SA tax calculator includes the tax figure with no Nil Rate £500 in the basic rate band, giving a total of £15,000 in the basic rate band. The £500 nil rate band should be applied. The Top Slicing Relief is calculated as £11,000 whereas it should be £11,400.

The calculation, taking into account the starting rate for savings and personal savings allowance is illustrated below:

Current without TSR
Non Savings Event Gain Total Tax Tax on Gain
Income 30,000.00 70,000.00 100,000.00
PA - 11,850.00 - 11,850.00
18,150.00 70,000.00 88,150.00
0% 500.00 500.00  - 
20% 18,150.00 14,500.00 32,650.00 6,530.00 2,900.00
40% 55,000.00 55,000.00 22,000.00 22,000.00
88,150.00 28,530.00 24,900.00

TSR Correct Calculation
Non Savings Event Gain Annualised Total Tax
Income 30,000.00 14,000.00 44,000.00
PA - 11,850.00 - 11,850.00
18,150.00 14,000.00 32,150.00
0% 500.00 500.00  - 
20% 18,150.00 13,500.00 31,650.00 6,330.00 2,700.00
x5 Years 13,500.00
Correct TSR 11,400.00

HMRC's calculation ignores the nil rate for savings and calculates TSR simply as being the difference between (14,500*20%+55,000*40%) = 24,900 and (14,000*20%*5 years) = 14,000 = £10,900 TSR.

For 2017/18 returns, If you believe that your Top Slicing Relief calculation is incorrect, a paper return should be filed together with an explanation as to how the calculation is affected.

For 2018/19 HMRC believe this exclusion no longer applies and so we have removed the Check and Finish message from our software.

Article ID: 2969
Last updated: 11 Dec, 2019
Revision: 5
Views: 82
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