Offshore bond help!
Jenni
Member
Hi everyone,
I am trying to work out a tax estimation on an offshore bond and slowly losing the will to live... if anyone could glance over it and give me some pointers they would be very gratefully received!
The client has earned income of £13,500 in the tax year (which was 2017/18). The total bond gain was £38,600 (figures rounded down for ease) and it was held for 10 full years.
As this would take them into the higher rate of tax, I believe top slicing is available. However, I also think they will have some of their savings rate band to use, and the personal savings allowance of £500 as the gain will make them a HRT. The tax on the gain would be £8,440 without top slicing.
My problem arises when I look at the sliced gain, which is £38,600 / 10 = £3,860. This in addition to earnings of £13,500 wouldn't take the client into the higher rate tax band. Would this top sliced gain be covered by the PSA of £500 and remaining SRB of £3,000 (£16,500 - £13,500), leaving only £360 to be taxed at the basic rate? So tax would be £360 * 20% * 10 = £720? This seems far too low given the gain.
I might have looked at this for too long and be missing something very obvious, but can't see it at the moment! I would also say that this is more for my own satisfaction/knowledge as we will refer the client to a tax specialist.
Thank you in advance
Jenni
Comments
Hi Jenni
Looks like you have been looking at it too long! You are right in that the PSA is reduced to £500 and they have £3,000 of the starting rate band left. So the first £3,500 is taxed at 0%, the remaining £35,100 is taxed at 20%, £7,020. The top slice only comes into play to determine whether any of the gain falls in the higher or additional rate bands.
This is a useful article
https://www.canadalife.co.uk/adviser/ican-academy/briefing-notes/chargeable-gains-and-rate-bands-briefing-note-canada-life
All the best
Tom
I recommend using CashCalc for this (and many other calculations).
I was definitely looking at it for too long - a fresh pair of eyes this morning has helped. Thanks for your comments. I've just checked out CashCalc and it looks really helpful, so have now registered for the 28 day trial. Thanks again