Ask the Expert: My accountant says I should top-slice my investment bond. What does that mean?

Carl Lamb, managing director of Almary Green, offers his advice. Picture: Almary Green.

Carl Lamb, managing director of Almary Green, offers his advice. Picture: Almary Green.

Almary Green

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.

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