Personal Tax

Life insurance policies ― top slicing relief

Produced by Tolley
  • 21 Dec 2021 16:43

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Life insurance policies ― top slicing relief
  • Taxation of life insurance gains
  • Top slicing relief
  • When is top slicing relief available?
  • Calculation rules for the purposes of top slicing relief
  • How top slicing relief is given
  • One chargeable event gain
  • More than one chargeable event gain
  • Interaction with the personal allowance
  • Chargeable event gains that occur prior to 11 March 2020
  • More...

Life insurance policies ― top slicing relief

The profits from the surrender of certain life insurance policies are treated as savings income (rather than capital gains) and taxed last after all other income (ie top sliced) in the income tax computation. Usually the gain has a 20% deemed tax credit attached, which means that if the policyholder is a basic rate taxpayer they do not have any further tax to pay. For more on the tax credit and the reporting of life insurance gains, see the Life insurance policies guidance note. You should read that note before continuing as the commentary below assumes familiarity with the terms discussed in that guidance note.

Different rules may apply to foreign policies and these are covered in the Offshore bonds and other foreign policies guidance note. That guidance note also explains how to find out if your client has a foreign policy.

However, there is an inherent unfairness in treating the life insurance gain as income in one year; the profit has actually accrued over the lifetime of the policy but due to these provisions is subject to tax all in one year. This can be advantageous if the taxpayer is able to ensure their other income is low enough to allow all the life insurance gain to be taxed at the basic rate (see below). It is a disadvantage where the gain means that the taxpayer pays more tax than they would have done had the gain had been taxed a proportionately across the

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

Think Tax.
Think Tolley.

Critical, comprehensive and up-to-date tax information


Popular Articles

Research and development expenditure credit (RDEC)

RDEC ― large company R&D reliefSince 1 April 2016, or from 1 April 2013 by election, large company R&D relief is given through research and development expenditure credits (RDEC), which is a taxable credit payable to the company. As the credit is taxable, it is also sometimes called an above the

16 Dec 2021 14:20 | Produced by Tolley Read more Read more

Requirement for estate accounts

Duty to prepare estate accountsThe Personal Representatives' (PRs) legal obligation to prepare accounts is set out in Section 25 of the Administration of Estates Act 1925. Their prescribed duties include:when required to do so by the Court, exhibit on oath in the Court a full inventory of the estate

21 Dec 2021 16:31 | Produced by Tolley Read more Read more

Class 1 v Class 1A

Class 1 and Class 1AClass 1 and Class 1A are the categories of NIC that can be charged on expenses reimbursed and benefits provided to employees. These classes are mutually exclusive. A benefit cannot be subject to both Class 1 and Class 1A NIC. Three requirements must be met before Class 1A NIC is

19 Oct 2021 23:29 | Produced by Tolley in association with Vince Ashall Read more Read more