Changes to Top Slicing Relief legislation
Until recently HMRC used a simplified and outdated method to calculate top slicing relief. In many cases they have under calculated TSR by tens of thousands of pounds.
Tim Good first explained how HMRC’s top slicing relief (TSR) calculator was incorrect in his ‘Calculating top slicing relief’ article which was published in Taxation magazine in September 2017. Since that time, the issue was taken further by Marina Silver who has successfully argued her case at a HMRC First-tier Tribunal. The judgment from that Tribunal can be read here. In March 2020 HMRC withdrew their appeal against the Silver judgment.
Update on the Silver case
Judge Richards of the Upper Tribunal consented in March 2020 to HMRC’s withdrawal of the appeal against the decision of the First-tier Tribunal in the Marina Silver case. The Judge has also confirmed that HMRC will pay Mrs Silver’s reasonable costs. The Judge was asked that HMRC’s appeal be dismissed rather than withdrawn (we remain concerned that HMRC would be able to resist other claims on the grounds that the FTT judgment is not binding on them). The Judge resisted this request and so there may be a battle yet to be fought, but in the meantime HMRC now have no grounds on which to reject claims brought on the basis of the analysis that Tim Good first set out in Taxation Magazine in September 2017.
The outcome of the Silver case has prompted the Government to clarify how allowances and reliefs can be set against life insurance policies in the Finance Act 2020.
Tim Good has written a follow up article in Taxation Magazine (April 2020) about the TSR changes announced in the 2020 Budget and why it matters.
The Silver case has highlighted the importance for accountants and relevant professional services firms of double checking their tax calculations for any client (including deceased estates) that have a CEG, to see if they have a possible claim. CEGs arise on investment bonds or single premium non-qualifying life policies, which have been widely sold by the investment industry over recent decades.
The Judges case
The Judges case was heard on 19 January 2022 and the decision was published on 18 February 2022. The case involved a difference in the calculation of TSR in the year of death (2017-18) of over £44,000.
These two cases could have major implications for your clients, who could now reclaim hundreds if not thousands of pounds in overpaid or over-calculated tax. In the Silver case the taxpayer recovered over £19,000 and in the Judges case over £44,000.
To watch the TaxTV Topslicer interview between Tim Good and Giles Mooney click HERE
March 2022 Update from Tim Good
I continue to see multiple copies of correspondence from HMRC officers dealing with outstanding top slicing relief issues.
As you will see from reading the March 2022 update there is still a lot to play for!
There are three main areas of interest and in each of these I would say that HMRC are on the back foot:
- Process issues – where typically HMRC are out of time to correct or open enquiries;
- Application of the Silver and Judges judgments to cases before 2018-19;
- Overpayment relief claims.
June 2023 Update from Tim Good
The long running top slicing relief (TSR) saga continues!
Following the FTT cases (Silver and Judges) and the changes made in Finance Act 2020 HMRC have attempted to correct their top slicing relief calculator. Unfortunately the version released and used in most commercial tax software (v2.1.2) seems to have introduced errors which I have been unable to trace. HMRC v2.1.1 was better (although not perfect).
The upshot of all this is that HMRC and commercial software may well undercalculate TSR for 2022-23 cases and will sometimes be too generous. It is highly likely that HMRC will in due course publish yet another Exclusion for top slicing cases and taxpayers might end up having to pay more tax where it turns out that HMRC have been too generous.
For the tax years 2019-20, 2020-21 and 2021-23 HMRC officers will presumably use the version of the HMRC calculator that was in force for the relevant tax year and this will often give results that overcharge the taxpayer.
ALL TSR cases for these three years should be checked using my Topslicer App.
Overpayment relief claims must be made within four years of the end of the tax year (so we have until 5 April 2024 for the 2019-20 claims).
In the meantime I am still waiting for a hearing date for the five Tribunal cases that I am taking (pro bono) on the basis that HMRC are wrong to deny overpayment relief claims for earlier years on the basis of “practice generally prevailing”. These cases have no impact on overpayment relief claims for 2019-20 and later years.
The Taxpert Topslicer Tool gives a quick, easy and accurate way of checking the HMRC calculation of TSR on CEGs.
The Topslicer Tool performs the calculations set out in s535 ITTOIA 2005 to calculate the correct amount of TSR and then compares the result to the HMRC calculation. The Taxpert Topslicer Tool shows full workings which can be used to support a submission to HMRC.
This means you can:
- make historical checks on your client’s tax liabilities to see if there is a difference between what they paid and what they should have paid. The software highlights, where appropriate, how much they may have overpaid; and
- use the Topslicer Tool as a tax planning aid to reduce future CEG tax liabilities.
In a nutshell, the Topslicer Tool is the only calculator currently on the market which follows the methodology approved by the Tribunal in the Silver case. It allows you to:
- work out the top slicing relief on chargeable event gains;
- input income and reliefs figures for the relevant tax year and instantly see the tax result;
- select any tax year from 2019-20 to 2023-24;
- show the HMRC figures and highlight any differences.
The Topslicer Tool also includes the full workings that can be submitted to HMRC as part of a claim.
Taxpert Topslicer Tool in action
- Marina cashed in an investment bond triggering a chargeable event gain in 2019-20 of £120,000 after 15 years. She had pension and savings income of £40,000. HMRC said her tax bill for 2019-20 was £32,500. The Taxpert Topslicer tool makes it just £8,500.
- Neville cashed in an investment bond triggering a chargeable event gain in 2019-20 of £10,000 after 6 years. He had pension and savings income of £50,000. HMRC said his tax bill for 2019-20 was £7,300. The Taxpert Topslicer tool makes it just £7,500.
Why use the Taxpert Topslicer Tool
This Excel based groundbreaking tool will redefine how we calculate top slicing relief on chargeable event gains in the UK. Its application could help some of your clients save thousands of pounds in tax and help you to advise on the optimum encashment strategy for 2023-24. The Topslicer Tool should be used to identify your clients who could be affected by the outcome of the Silver and Judges cases.
As well as showing you the difference between the HMRC calculation and what it should be, the Topslicer Tool provides the full workings of the calculation which will be invaluable when submitting a claim to HMRC. Plus, as it’s developed by Tim Good who first spotted the error in HMRC’s calculations, you can be confident that the tax figures you present to your clients will be correct.
Topslicer in action – feedback from users
“The Topslicer Tool is an invaluable resource. As a Family Office providing investment, tax, financial planning and legal services, our clients have varied and often complex financial affairs. We have been able to use the Topslicer Tool to assist not only with tax return preparation but also with future planning decisions for our clients across all the disciplines.
Its supporting computations are particularly useful for checking how the topslicing figure is arrived at – an impossibility with the commercial tax software.”
Sam Litchfield CTA ATT ACSI, LCM Family Limited
Single user licence - £299 + VAT for and Multi user £499 plus VAT (up to 5 users).
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