24th July 2020
Gains realised on life insurance policies are subject to income tax at the individual’s marginal rate under the chargeable event gain regime. The gains accrue over a number of years but are taxed in one year. This can result in gains being taxed at a higher rate. Top Slicing Relief (TSR) is available to mitigate the impact of this higher tax charge.
The recently enacted Finance Act 2020 (FA 2020) allows individuals to retain the benefit of their Personal Allowance (currently £12,500) when calculating the amount of available TSR, rather than accept it as abated if the chargeable event gain took their total income over £100,000.
HMRC has confirmed that it will apply the FA 2020 changes to the calculation of TSR to any gains in both 2018-19 and 2019-20 tax years ‘by concession’. For significant gains, the tax saving/refund available may be material.
In certain circumstances it may also be possible to claim a refund of tax paid for gains in 2016-17 and 2017-18.
If you should have any questions on the above, please contact Katharine Arthur or your usual haysmacintyre contact.