ICAEW.com works better with JavaScript enabled.

TAX NEWS

HMRC confirms top slicing relief calculations for 2019/20 onwards

Published: 29 Jun 2020 Update History

HMRC has confirmed its position on top slicing relief on life insurance policy chargeable event gains for 2019/20, but the position for earlier years remains uncertain.

In its latest agent update, HMRC outlined its approach to the calculation of top slicing relief (TSR) on chargeable event gains following legislative changes announced at Spring Budget 2020 (11 March 2020). This follows a successful appeal by a taxpayer in the First-tier Tribunal (FTT) (Marina Silver TC7103).

What is the issue?

TSR aims to provide relief to taxpayers who become subject to a higher rate of tax as a result of a gain from an insurance policy being included in their income.

Two elements of income tax computations give rise to the differences between HMRC’s interpretation and the position confirmed in the Silver case:

  1. Where the personal allowance has been reduced because a gain has been included as income.
  2. The ordering of reliefs and allowances in the TSR calculation.

Finance Bill and HMRC’s position

Measures included in Finance Bill 2020, currently going through parliament, will allow reduced personal allowances to be recalculated within the calculation for TSR. This will provide additional relief for taxpayers whose entitlement to the personal allowance has been reduced because a gain has been included as part of their income for the year. It also sets out the order that reliefs should be given.

Assuming the Finance Bill clauses are passed unamended, they will apply to gains arising on or after 11 March 2020, but HMRC has confirmed it will apply the Finance Bill treatment to all gains arising in 2019/20 as a “concessionary treatment”.

The position for tax years prior to 2019/20, however, remains uncertain as the FTT decision is persuasive, but not binding. It is not yet known whether HMRC will continue to reject claims by other taxpayers which would probably lead to a further tribunal case.

The explanatory note to the Finance Bill states that the clauses “put the matter beyond doubt…in line with the original policy intent” which appears to be inconsistent with HMRC arguing for a different approach for previous tax years.

Further support

Further detail and worked examples are available in a number of articles by Tim Good for Taxation:

HMRC support

The Tax Faculty

ICAEW's Tax Faculty is recognised internationally as a leading authority and source of expertise on taxation. The faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.

More support on tax

ICAEW's Tax Faculty provides technical guidance and practical support on tax practice and policy. You can sign up to the Tax Faculty's free enewsletter (TAXwire) which provides weekly updates on developments in tax.

Sign up for TAXwireJoin the Tax Faculty

More from the Tax Faculty

Latest news
Making tax digital image
TAXwire

Stay up to date with the latest developments in tax by signing up to the Tax Faculty's weekly e-newsletter

Practical guidance
Cover
TAXline

Comprehensive support for Tax practitioners each month from the Tax Faculty and expert contributors.

Technical support
Tax Faculty image
Webinars

Expert advice from the Tax Faculty's technical managers on all the developments in tax policy and practice.

Open AddCPD icon

Add Verified CPD Activity

Introducing AddCPD, a new way to record your CPD activities!

Log in to start using the AddCPD tool. Available only to ICAEW members.

Add this page to your CPD activity

Step 1 of 3
Download recorded
Download not recorded

Please download the related document if you wish to add this activity to your record

What time are you claiming for this activity?
Mandatory fields

Add this page to your CPD activity

Step 2 of 3
Mandatory field

Add activity to my record

Step 3 of 3
Mandatory field

Activity added

An error has occurred
Please try again

If the problem persists please contact our helpline on +44 (0)1908 248 250