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Until recently HMRC used a simplified and outdated method to calculate top slicing relief.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 The Judge was asked that HMRC’s appeal be dismissed rather than withdrawn (we remain concerned that HMRC would be able to resist other claims on the grounds that the FTT judgment is not binding on them).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 Bill 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.
This case could have major implications for your clients, who could now reclaim hundreds if not thousands of pounds in overpaid or over-calculated tax.
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 2013-14 to 2020-21;
- 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 £40,000. The Taxpert Topslicer tool makes it just £8,500.
- Neville cashed in an investment bond triggering a chargeable event gain in 2017-18 of £10,000 after 6 years. He had pension and savings income of £45,000. HMRC said his tax bill for 2017-18 was £7,500. The Taxpert Topslicer tool makes it just £6,700.
Why use the Taxpert Topslicer Tool
This Excel based ground breaking 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 2020-21. The Topslicer Tool should be used to identify your clients who could be affected by the outcome of the Silver case.
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 one tax year (unlimited clients or scenarios).
Subsequent tax year licence - £149 + VAT per additional tax year.
So if you wanted the Topslicer Tool for say 2019-20 and 2020-21, a single user licence for both years would cost £448 + VAT and allow you to enter and save details for as many examples as you like.
Multi-user licences – please contact us for more details.
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