Stand-out Q – surrendering a bond…

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MON, 05 FEB 2018

Our Technical Hub provides access to a wide range of pension tax and trust technical resources. Every now and then we post tweets covering stand out questions from our technical content and our answers in case others might also find them helpful. As Twitter’s character restrictions only allow for the bare bones of the Q&A we link to the details here, too.

Question:

How do I calculate the top-sliced gain when surrendering a bond if the funds were invested over two premiums on different days?

Answer:

When a bond is encashed in full, the gain can be top-sliced. The top-slicing calculation is completed by calculating the number of complete years since the bond’s inception and calculating the total chargeable gain using both investments.

A worked example illustrates this in more detail.

Example

Frank invests £50,000 in an onshore investment bond in January 2011. He invests a further £30,000 in October 2013.

In July 2018, the value of the bond is £115,000. He decides to fully surrender the bond. He has not made any previous withdrawals.

The chargeable gain is calculated as follows:-

£115,000 – (£50,000 + £30,000) = £35,000.

The bond has been in existence for 7 complete years. The top-sliced gain is therefore £5,000 (£35,000/7).

Frank’s other income is £20,000. As his income, including the top slice, for the 2018/19 tax year is still below the higher rate threshold, no top-slicing relief is due.

HMRC’s manual discusses the mechanics of top-slicing calculations in more detail, including what to do if there have been previous chargeable event gains, at IPTM3830.

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