Budget 2020: top slicing relief on life insurance amended

The Budget set out an immediate change to the tax treatment of top slicing relief (TSR) on life insurance policy gains to reinstate the reduced personal allowance and remove the higher rate cliff edge

The top slicing relief legislation has been amended to clarify the position on the ordering of reliefs and allowances, and to reinstate reduced personal allowances for calculation purposes.

This provides additional relief for taxpayers whose entitlement to the personal allowance has been reduced because a gain is included as part of their income.

Life insurance policy gains accrue over a number of years but are taxed in one year. This can result in gains being taxed at a higher rate due to the one-off nature of the policy payout. This measure is expected to benefit around 2,000 of the 45,000 individuals who return gains annually and will cost around £15m a year to operate, according to Treasury figures.

The latest measure is designed to mitigate the impact of the higher tax charge when taxpayers are technically not in the higher rate tax bracket.

The measure also clarifies the treatment of allowances and reliefs within the top slicing relief calculation by confirming that they must be set as far as possible against other income in preference to the gain. This will ensure that the relief is calculated in a fair and consistent way, the government said.

When it was introduced, top slicing relief was intended to provide tax relief to taxpayers who had fallen into a higher rate of tax due to a gain being included in their income. The amendment is designed to ensure the rules are clearer and more consistent.

The measure came into immediate effect from 11 March 2020 for all relevant gains occurring on or after the announcement at Budget 2020.

Top slicing relief TIIN

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