Top slicing relief is a very valuable feature of investment bond taxation. It turns out, however, that for many years we may not have fully understood how it works.
Historically most of us had the following understanding of top slicing relief:
- Where an investment bond chargeable event gain (when added to other income) sits entirely within a tax band (basic rate, higher rate or additional rate) top slicing relief is not available.
- Top slicing relief is available only where the gain straddles tax bands (for example, where a client’s ‘other’ income sits within the basic rate band, but the chargeable event gain sits part in basic rate and part in higher rate).
- Top slicing relief is therefore a relief against higher or additional rate tax.