Cashing in investment bond - tax

Linton

I have recently cashed-in an investment bond held jointly with Mrs L since 2001.  The gain as specified by the provider is about £16K, so £8K each. A couple of questions arising:

1) My understanding is that basic rate tax is regarded as having been paid and If I can keep my income in the 2020/21 tax year to £450 (approx) below the higher rate tax band then I should avoid any additional tax using top slicing whereby the gain is spread over the lifetime of the bond. Otherwise I could be charged 20% higher rate tax. Correct?

2) How do I claim top slicing?  Do I need to do anything or will HMRC contact me? What is the process?  I assume the provider will tell HMRC about the sale of the bond and it will be included in my end of year tax statement.

Thanks for any info.

xylophone

https://www.pru.co.uk/pdf/INVS0002.pdf

Top Slicing Relief

Top slicing relief is generally available where the taxpayer would be liable to tax at a lower rate were it not for the inclusion of the chargeable event gain in their income
for the year. When the chargeable event gain does not move a taxpayer into a higher tax rate, there may be still be some top slicing relief available due to the effect of the personal savings allowance nil rate and the starting rate for savings.

https://www.ftadviser.com/investments/2020/05/20/advisers-must-understand-how-to-calculate-top-slicing-relief/

dunstonh

2) How do I claim top slicing?  Do I need to do anything or will HMRC contact me? What is the process?  I assume the provider will tell HMRC about the sale of the bond and it will be included in my end of year tax statement.

You dont claim top slicing.   You just use it to see if there is a further liability or not.   If not, then you do nothing.  

There is a section on the tax return to record chargeable gains.