Budget 2020: Personal Allowance and Top Slicing Relief

Silver v HMRC and Personal Allowance

Last year, we saw the First-tier Tribunal case of Silver v HMRC [2019], concerning the withdrawal of Mrs Silver’s personal allowance in the calculation of the Top Slicing Relief due on a chargeable event gain from the surrender of a life insurance bond in May 2015. The purpose of Top Slicing Relief is to provide relief to taxpayers who have become subject to a higher rate of tax due to a chargeable event gain being included in their income for the year. It achieves this by calculating the additional tax due on ‘one slice’ (i.e. one year) of the gain and multiplying this by the number of years on the life policy.

In the case of Mrs Silver, the chargeable event gain of £110,721 increased her income for 2015/16 from £31,101 to £141,822 and the First-tier Tribunal agreed with HMRC that her personal allowance should therefore be reduced to nil, on the basis her income was well over the £100,000 threshold at which the personal allowance starts to be abated. However, the First-tier Tribunal agreed with Mrs Silver when it came to the calculation of the Top Slicing Relief, in that by only including one slice of the gain (the principle upon which the calculation is based), Mrs Silver should benefit from the personal allowance on the basis that her income was far below the £100,000 threshold. This would increase the Top Slicing Relief from around £2,000 to around £22,000, thereby saving extra tax of around £20,000.

The proposed revisions to the Finance Bill 2020 indicate that the legislation will be amended to reinstate the personal allowance in the calculation of Top Slicing Relief from 11 March 2020 onwards, in partial support of Mrs Silver and her case. However, HMRC are currently appealing to the Upper Tribunal and this is due to be heard in April 2020, so we are watching this space for historic claims…

What to do about it – Overpayment Relief

If you have crystallised a chargeable event gain on the surrender of a life insurance bond in previous years, then you may wish to consider any potential claims for overpayment relief that could be submitted to HMRC, relating to the incorrect calculation of Top Slicing Relief. However, until we have binding precedent, HMRC may reject any such claims which is incredibly frustrating given this change. Overpayment relief claims may be made within four years of the end of the relevant tax year, but it is possible to go back further than this where HMRC’s calculation is shown to be incorrect.

To discuss this in more detail please contact me.