Commentary

E1.455B Life insurance gains—top slicing relief

Personal and employment tax

E1.455B Life insurance gains—top slicing relief

E1.455B Life insurance gains—top slicing relief

Top slicing relief is available in the calculation of income tax on chargeable events that occur on qualifying policies. For more on the definitions of such policies see E1.441 and E1.442. Top slicing relief applies to what are commonly known as investment bonds, but E1.442 discusses the concept of 'relevant polices'.

What is an investment bond?

HMRC guidance defines investment bonds as:

'Generally a unit-linked, single premium whole of life or endowment policy providing minimal guaranteed death benefits, and often capable of surrender without penalty, particularly later in the term. An investment rather than insurance in the general sense.'1

An investment bond is a life assurance policy which enables the investor to invest funds with the intention of securing a return through long or medium term growth.

What is special about the tax treatment of investment bonds?

Investment bonds are subject to income tax on both income and investment growth. The liability to tax comes into effect on the occurrence of a chargeable event. For more on chargeable events see E1.451.

Tax is effectively deferred until a chargeable event occurs and this can be a significant incentive for investors. However, it does mean that investment returns accrued over many years are taxed in the tax year in which the chargeable event occurs. As a result, more tax may be due at higher rates due to the increase in taxable income in that year.

How is relief given?

Relief is given to an individual who is charged to higher rate

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