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