Tim Good considers top slicing relief, when it should be used and how it works when correctly applied
Anybody who has studied for the CTA qualification will be familiar with the basics of taxing chargeable event gains and calculating top slicing relief. To recap briefly: certain investment products (known variously as investment bonds or non‑qualifying life policies) are marketed to investors on the basis that up to 5% of the initial investment may be paid each year to the investor without any immediate tax charge. These ‘tax‑free’ withdrawals can be especially helpful for older higher rate taxpayers in managing their income tax liability. A tax charge may arise, however, if there is a partial withdrawal or complete encashment of the bond or policy and the proceeds exceed the unused 5% allowances.