Glossary · UK
What is Top-Slicing Relief?
A relief that can reduce the Income Tax due on a chargeable event gain from a life insurance bond by spreading the gain over the years the policy was held.
Full Definition
Top-slicing relief mitigates the Income Tax charge that can arise on a chargeable event gain from a life insurance investment bond, typically when the bond is surrendered or matures. Because such gains are taxed as income in a single tax year, a large gain can push an investor into the higher (40%) or additional (45%) rate, or cause loss of the 12,570 Personal Allowance above 100,000. Top-slicing relief recognises that the gain built up over many years. In outline, the total gain is divided by the number of complete years the bond was held to produce the average annual slice. The tax on that slice is calculated, and the relief broadly equals the difference between the tax on the full gain and the tax on the sliced gain multiplied back up by the number of years. For onshore bonds a 20% tax credit reflects tax already paid within the fund, so only higher and additional-rate liabilities remain; offshore bonds carry no such credit. The calculation interacts with the Personal Savings Allowance and the dividend and savings allowances. Following the Silver case and subsequent legislation, the Personal Allowance is reinstated for the purpose of computing the relief. The relief reduces tax but never produces a repayment.