# Bond gains and the Personal Allowance

Member

Hi all,

I've been reading up on this as I'm doing some work for a client who has an over £100,000 onshore bond gain.

It was my understanding that the Silver case had potentially shaken up everything we ever believed about how bond gains interact with the Personal Allowance, in that the top-sliced gain would be used, not the total gain, when determining the Personal Allowance available for other income.

Having looked at HMRC, Standard Life Techzone and Pru's various factsheets, I'm more confused than ever! These seem to say that HMRC as now used the decision from Silver to amend the longhand method of calculating bond gain tax to allow the Personal Allowance to be used in the top slicing calculation even where the total gain takes total income over £100,000. Fine. However, none of them are totally clear on how this affects allowances available for other income, specifically the Personal Allowance.

I found one Pru Q&A that states that the Personal Allowance could still be reduced or lost due to the total gain even where top slicing results in no tax on the gain itself but nothing else that backs this up or explains how the gain calculation and tax on other income calculations interact.

Our friends at Ascentric (via their M&G/Pru connections) have provided an answer to this:

An individuals tax computation involves 7 steps.

At step 3 you deduct someone's personal allowance.

The personal allowance available can be reduced if the adjusted net income is over £100,000 - this figure includes the FULL amount of bond gains. This has always been the case and this has NOT changed.

Step 4 then goes on to calculate tax on all the different components of your income taking into account the various allowances, tax bands, relief at source pensions, gift aid contributions etc

Step 6 is where you deduct your reliefs, in this case it's top slicing relief.

Top slicing relief is broadly speaking the difference in tax in excess of 20% on your full bond gain and tax in excess of 20% on your slices.

This broadly means repeating steps 1 to 4 of the standard computation twice - once using the full gain and one using the slice (there are some quirks I'll not get into here).

HMRC's position was that you used the personal allowance calculated at step 3 for both parts of the top slicing calculation.

Silver argued that as it was a hypothetical calculation when calculating the tax on the slice the personal allowance should be recalculated based on the slice.

Silver won. HMRC legislated to make it clear the Silver way was the correct way.

In short therefore, the budget change due to Silver allows the personal allowance to be reinstated within the calculation for top slicing relief and that alone - it does not allow people with large gains to keep their personal allowance.

Savings allowances continue to be calculated based on the full gains for all parts of the top slicing calculation.

They may find this useful -

And this

And if you are at a loose end tomorrow at 11am and are CII / PFS members I am presenting a digital webinar event on the very subject!

Les Cameron - the Head of Technical

Paraplanner. F1, Apple, Nutella, ice cream. No trite motivational quotes. Turning a bit northern. Republican.

• Member

Thanks for this @richallum and Ascentric!

Ok, so that's all in line with the long hand calculation we've been doing for a little while now and also clears up the fact that we still need to calculate whether the Personal Allowance is reduced separately.

I think the simple comment made here (and commonly across technical resources) is misleading:

"Top slicing relief is broadly speaking the difference in tax in excess of 20% on your full bond gain and tax in excess of 20% on your slices."

While that shorthand used to be ok, we can't use it now because of the savings bands - it could lead to a different outcome. It's possibly ok for smaller gains within the basic rate band.

I think the difference pre and post Silver is that there would previously have been no Personal Allowance available when the slices were applied when the PA was lost for other income as well - i.e. the situation where losing the PA meant more tax on the gain as well. Pot Silver, the PA can now be used for the slicing calculation even if not available for other income.

• Member

This is very good and will save you a heck of a lot of time. I have tested it numerous times to check it works and I haven't seen any issues to date.