investment bond - top slicing - tax due

JeffMason

[Deleted User] said:

JeffMason said:

Ah. Ok. I think the confusion is a difference of opinion on how to deal with this.

So - 

@Jeremy535897 - you are saying don't pay it, but I don't how to not pay it..? I don't know how to make the amount due go to zero before I submit the return?

And @[Deleted User] - you are saying to pay it with all the additional information included, and asking for a refund of £1356.80 - which is actually a refund of my 1245.20 PLUS the £111.60 I should get anyway.

Not refund - an adjustment to the tax arising from the calculation.

On the first point you CAN’T make the amount go to zero as I have stated. There is NO link from the additional information box to the calculation- it has to be a manual adjustment by HMRC.

Not a refund? Will it not be a refund if I have already paid it? "Tax arising" makes it sound like it'll just be an invoice that I haven't yet paid. But I assumed I had to give them the money straight after click submit. Is that not the case?

And OK, I think you're probably right to go your route. But I still don't understand why Jeremy said I shouldn't pay and offset it by saying I've already paid it. That's making it go to zero - are you suggesting what he's saying isn't possible?

JeffMason

Dazed_and_C0nfused said:

I'll side with @[Deleted User] on this one.

Two wrong don't make a right and I think @Jeremy535897's suggestion is a step too far in this instance and adding in a false tax amount is only going to confuse matters even more.

Thank you for your advice here. I was getting very confused and didn't know which way to go, but you have made it easy for me to go with the majority. 

Dazed_and_C0nfused

JeffMason said:

[Deleted User] said:

JeffMason said:

Ah. Ok. I think the confusion is a difference of opinion on how to deal with this.

So - 

@Jeremy535897 - you are saying don't pay it, but I don't how to not pay it..? I don't know how to make the amount due go to zero before I submit the return?

And @[Deleted User] - you are saying to pay it with all the additional information included, and asking for a refund of £1356.80 - which is actually a refund of my 1245.20 PLUS the £111.60 I should get anyway.

Not refund - an adjustment to the tax arising from the calculation.

On the first point you CAN’T make the amount go to zero as I have stated. There is NO link from the additional information box to the calculation- it has to be a manual adjustment by HMRC.

Not a refund? Will it not be a refund if I have already paid it? "Tax arising" makes it sound like it'll just be an invoice that I haven't yet paid. But I assumed I had to give them the money straight after click submit. Is that not the case?

And OK, I think you're probably right to go your route. But I still don't understand why Jeremy said I shouldn't pay and offset it by saying I've already paid it. That's making it go to zero - are you suggesting what he's saying isn't possible?

Of course it's possible, you could just add £1356.80 to the PAYE tax figure.

But you are then making a false claim for tax deducted and opening yourself up to investigation by HMRC.

And IMHO making an already complicated situation immeasurably more complicated.

[Deleted User]

I am sorry but have spent considerable time on this thread. I have advised you exactly what to do based on my own experience. Ultimately you must decide whether or not to take that advice. Good Luck!

Dazed_and_C0nfused

purdyoaten2 said:

I am sorry but have spent considerable time on this thread. I have advised you exactly what to do based on my own experience. Ultimately you must decide whether or not to take that advice. Good Luck!

Quite.

There'll be plenty of people still to post tonight wondering why their Self Assessment calculation doesn't include their own POA from January and July last year 🙄

Jeremy535897

Ultimately it is for OP to decide. The problem with leaving it showing as due but not paying it is that you might get the bailiffs turning up and your credit rating trashed, with incorrect interest and penalties mounting up, while HMRC sort this out, which they have failed to do for about five years now. But equally I understand why anyone might be nervous of putting in a figure for a tax payment that doesn't exist. The software that I use has a box that says "any other payments or credits, not already included, that have been made towards your 2020/21 tax bill". I would argue that this is such a credit, as it eliminates a fictional liability that only exists because HMRC's own software gives the wrong answer, despite assurances to the contrary. I would explain it fully in the white space, as already discussed. The existence of the small repayment is unfortunate, as it muddies the waters more. I fully understand why others would disagree with my view though.

Jeremy535897

On another recent thread a similar issue was raised, and there is this example updated this month from Prudential that goes into a lot of detail:
https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/top-slicing-relief-facts/

JeffMason

Hi All,

For context:

I completed my 20-21 tax return online and added the gain from my cashed in onshore investment bond (used to help buy a house) and the calculation said that tax was due, when I thought there wouldn't be anything owed. I had been told previous to that I wouldn't need to pay any tax on it after taking into account my low income and the top slicing relief based upon how many years it's existed.

My exact income that year was £27516. The exact gain from cashing the bond was £85920. This was an onshore bond that had basic rate tax already paid and was held for 11 years.

On the return, my tax allowance had been restricted to 5782 and that is what seemed to make the £1200 or so tax due. 

We thought that was incorrect.

And now, ten months later, I've at last had someone at HMRC respond (after first querying in January and chasing it via HMRC advisors monthly since then) and they've told me that they think it correct and my query is wrong. Are they right?

This is what they have said and I thought it might be interesting to follow up here:

"I have reviewed the self-assessment calculation of the tax due under Section 23 Income tax act 2007 in respect of the year ending 5 April 2021 and can confirm the calculation is correct.

I believe there may be some misunderstanding as to the changes to the position from 11 march 2020 in respect of the restoration of personal allowances. As per IPTM3820: IPTM3820 - Top slicing relief: general - HMRC internal manual - GOV.UK (www.gov.uk)

The personal allowance, where reduced by ITA07/S35(2), is to be recalculated for the purposes of the top slicing relief calculation only. 

And within example 4 of this page of the manual:

Alex is a basic rate taxpayer earning £25,000 in employment income. On 31 march 2020 he surrenders a life insurance policy helf for 10 Years resulting in a chargeable gain of £100,000.

As Alex's adjusted net income of £125,000 exceeds £100,000, his personal allowance is reduced in accordance with ITA07/S35(2). Alex's personal allowance is nil.

As Lex's non-savings income of £25,000 is more than his personal allowance of nil plus £5,000, his starting rate of savings is nil.

As Alex is a higher rate taxpayer his personal savings allowance nil rate tax band is £500.

However, for the purposes of the top slicing relief calculation at ITTOIA05/S536 only, as his gain arose on 31 March 2020, his personal allowance is recalculated.

The changes from March 11 impact how the Top Slicing Relief (TSR) is calculated but I can confirm that your calculation has been made in line with these changes. The loss of personal allowances for £1 for every £2 of income above the £100,000 limit is correct, regardless of if this income is derived from a chargeable event gain.

The TSR does have the effect of reducing any additional tax due on the reciept of the gain but the level of income reducing your personal allowances means the other income in the year is now taxable."

Jeremy535897

As the article I linked in my 21 March post states, it seems that you only reinstate the personal allowance for the purposes of calculating the top slicing relief. Have a look at that again.

JeffMason

Jeremy535897 said:

As the article I linked in my 21 March post states, it seems that you only reinstate the personal allowance for the purposes of calculating the top slicing relief. Have a look at that again.

I'm thoroughly confused by the whole thing. Does the article you linked to back up what we originally thought? Or verify what HMRC are now saying and that there wasn't an error in the online calculation?

And if the former, then what should I say in a letter back to them to clarify that I am right in this and they are wrong?