Top Slice Gain & Top Slice Relief

Jen_Berwick

Hi,

Very likely I have overthought and confused myself, however, my workplace has some template wording regarding Gains realised upon Onshore Bond withdrawals which has confused me. The wording is "The estimated 'top sliced' gain of c£, when added to your other income, is comfortably within the basic rate band for income tax, therefore, there will be no further tax due as a result of this withdrawal".

I'm not certain that this wording is correct. My understanding is that we don't add a top sliced gain to someone's income to determine whether they fall into the higher rate tax band, but the whole gain is added to determine if we then need to do a top slice calculation to calculate the tax relief they would get.

The resulting top slice calculation would be to caluclate the relief to deduct from tax payable on the withdrawal.

I've struggled to discuss and explain this to my supervisor, who keeps insisting that "there would be no point in doing a top slice calculation if you just add the whole gain on, that wouldn't be fair they'd be taxed on it all". My understanding is that yes, they are taxed on the whole gain but they receive relief for tax deemed to have been paid already within the bond.

I'm really not confident that I've got this right, but if I am then I have a feeling my supervisor is operating on out of date information. Was it the case before that tax payable used to be assessed by adding the top slice of the gain to a person's income?

Any help greatly appreciated, ready to be schooled!

les_cameron

Hi
There is a general rule of thumb that if all your slice sits in the basic rate band then you have no tax to pay onshore and 20% to pay offshore.

It is not however true to say there would be no tax caused by the gain as the full gain may make you lose personal allowance that would cause tax.

The full gain goes in your tax sums at step 1 of the tax computation then you take off top slicing relief and tax credit at step 6.

It would be more correct (but potentially too jargonny for the compliance geeks out there) to say "As the slice of your bond gain sits wholly within the basic rate tax band you will have no tax to pay on your bond gain. However, if the full gain when added to your other income is over £100,000 then you may lose personal allowance that may cause tax in other areas.

Everything you ever ned to know about TSR - https://www.mandg.com/wealth/adviser-services/tech-matters/investments-and-taxation/top-slicing-relief/top-slicing-relief-facts

And a tool to do the sums for you - https://www.mandg.com/wealth/adviser-services/tech-matters/tools-and-calculators/tax-relief-modeller

And https://www.professionaladviser.com/opinion/4117358/look-everything-advisers-about-slicing-relief