Ask the Expert: My accountant says I should top-slice my investment bond. What does that mean?
I have an investment bond which should pay out next year and the amount it will bring in will take me from my current basic rate tax band into a higher rate tax band.
My accountant tells me I can apply something called top-slicing to the gain which will stop that happening.
Can you explain how this works please and whether or not it is a good idea?
Response from Carl Lamb of Almary Green
Top-slicing is a term that is used to describe a relief system that allows you to spread the value of a gain on an investment bond or on the disposal of a life insurance policy over the number of years that you have held it in cases where the gain takes you into a higher tax bracket – so the gain doesn’t hit your assessed income for tax all in one go.
It is applied to gains that are “chargeable events” – which are triggered when your gain must be assessed for tax purposes.
It is indeed a useful tool to mitigate a potentially large tax bill if you receive gains within a specific tax year that tip you into the next tax bracket.
It is a fairly complex piece of tax planning so I do recommend that you get help either from your accountant or your financial adviser to make sure that you set it up properly.