Top slicing – the new calculation

[Tessa Roberts]

#321347

Hi Peter,

Our video looks at top slicing relief, but you’re right – it could be taken a stage further to illustrate the tax due – I just followed HMRC’s page, but the Pru’s example takes things a step further.

In terms of exam question it could be an ‘explain how it works’ or a calculation.

It’s the whole gain that’s used to work out the PSA, so usually only £500.

[Peter]

#320495

Hi Tessa,

I’m just going through the investment taxation videos. I’m very confused regarding the new top-slicing calculation.

Do we now need to do top slicing every time in the way explained in the video, rather than the calculation which we know and love, which is detailed on page 100 of the study notes?

I’ve looked at the Pru calculation found here and detailed in the notes –
https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/top-slicing-relief-facts/

and they then do a further 2 steps – they deduct the top slicing relief from the value calculated in the first step of the calculation (i.e. the tax which would be payable without doing the top slicing calculation), and then deduct 20% of the overall gain (as the basic rate tax credit), to give the total tax payable.

The tax paid at source seems to be deducted a number of times in this new method!

Do we need to do these 2 further steps in order to get the overall amount of tax payable by the person? The calculation seems much more complicated than it was, and gains with investment bonds was always a nemesis anyway for me, and this has made it a whole load worse!

Final question – when we use the personal savings allowance, do we always use the same amount within a calculation (which relates to the highest level of tax that the person will suffer when adding the OVERALL GAIN to their other income) rather than the higher one which might apply if we just add the top slice to their other income.

E.g. taxable income = £30000
Bond gain = £20000
Bond held for 10 years.

Overall income = £50,000 so higher rate tax payer and use PSA of £500
Using top sliced gain – gain added to income is within basic rate tax band, so may think you use PSA of £1000, but actually use £500 as need to consider the actual overall income when deciding the level of the PSA.

I’ve rambled on enough!

Many thanks,

Peter

PS on my holidays from Monday so you’ve 2 weeks to reply!

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