Top slicing relief on Investment bond

flying_high_3

Can anyone advise on the tax due on a £60k chargeable event gain from an international investment bond (tax not paid) that's been held for 22 full years. No other income in the tax year.

I understood that starting rate for savings and personal savings allowance are recalculated based on the sliced gain so should still be received in full, so there would be £18570 tax free (£12570 personal allowance, £1000 personal saving allowance, £5000 starting rate for savings). Then 20% tax on the remailing £41430, so £8286 in tax. However the calculation on the HMRC self assessment form gives £9486, which seems to be 20% on £47430, so only £12570 tax free, i.e. no personal savings allowance or starting rate for savings. Is that correct? If so why? Are there still issues with the self assessment calculation that need manual recalculation, if so how do you get that done and can you still submit online?

Many thanks.

Linton

Only the basic personal allowance applies when investment bonds are taxed, They are not "savings" but rather investments with their own special taxation rules.

Pinner_Boy

I'm not an expert but from everything I've read, chargeable gains from overseas bonds are taxed as savings income so I would expect the starting rate for savings and personal savings allowance to be applicable. But then it's a complex area and I may have missed a trick!

Info I read:

https://www.moneymarketing.co.uk/analysis/bonds-advisers-most-common-questions-answered

Is the £60k gain after dividing the total gain by 22 full years and slicing, or before the slicing? If it's before the slicing then is the sliced gain small enough to not need to use anything beyond the standard personal allowance anyway?

Pinner_Boy

Thinking about it some more…

I think the starting rate for savings and personal savings allowance are only recalculated when working out the tax payable if only the slice had been received. I don't think it's recalculated when calculating the tax payable before top slicing relief. So, your starting rate for savings stays at £5,000 as you have no other income and your PSA drops to £500 as your total income takes you into the higher rate income tax band.

Looking at your calculation, should you have reduced the PSA to £500? Also, should some of the income be taxed at 40%?

Having said that, I still don't get to HMRC's figure, so I'm still missing a trick somewhere.

	Income Tranche	Tax Rate	Tax
Personal allowance	£12,570	0%	£0
PSA	£500	0%	£0
Starting rate for savings	£5,000	0%	£0
Basic rate	£32,200	20%	£6,440
Higher rate	£9,730	40%	£3,892
Total	£60,000		£10,332

Linton

https://forums.moneysavingexpert.com/discussion/comment/81887532#Comment_81887532

I have put the problem to the Gemini AI. It agrees with the HMRC figure. The reduction from £10332 as calculated by @Pinner_Boy to £8286 arises because top slicing resets the higher rate tax to basic rate.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81887719#Comment_81887719

I also entered the gain via my third party self assessment filing software for 2025/26 on a what if basis and also arrived at HMRC's tax figure of £9,486.

Pinner_Boy

Yes, £9,486 does make sense. I think I get it…

The top slicing allows basic rate tax to be used for the chargeable gain as £60k / 22 years falls well below the higher rate band for the OP, with no other income.

For the main tax calculation, HMRC does not allow the PSA to be used and the starting rate for savings is lost as income is £60k.

So, that leaves us with the personal allowance (£12,570) at 0% and then the rest (£47.439) at the basic rate £47.439 at 20%.

Wonderful. What fun top slicing is!