Top Slicing Relief on life insurance policy gains - further update on Finance Act 2020 changes

HMRC have provided the following update which will be included in the next HMRC Agent Update

An earlier update was published on the CIOT website here.

HMRC is working to ensure all affected customers from 2018-2019 onwards receive all the relief that they are entitled to.  No customer will receive less relief than was before calculated by HMRC.

Beneficial ordering

The new measure provides clarification on beneficial ordering of the personal allowance within the TSR calculation.  It confirms that allowances must be set, as far as possible, against other income in preference to the gain.  This ensures that the personal allowance cannot be used twice in the tax year, which would lead too much relief being claimed.

It’s important to note that this isn’t a change of policy. The relief calculation has always applied this method. Otherwise the calculation would produce excessive relief or would allow relief to taxpayers who aren’t entitled to it.

The new measure acts to change how we treat the personal allowance in the calculation of TSR.

We are not changing how we calculate any other relief, allowance or rate such as the Savings nil rates.

The impacts on each year

Of the 45,000 customers who incur gains, HMRC estimate that 2,000 will enjoy these changes.

Outcomes of 2018-2019 Auto Recovery/Manual re-work

The 2018-2019 automated process was run on the 28th August 2020 and included customer returns for 2019 which have been received within HMRC up to 9 months prior to the run date. For Example: Returns filed on line 28th November 2019 and later.

2018-2019 Returns submitted under an exclusion are being manually reviewed and included customer returns for 2019 which had been received within HMRC up to 9-months prior (returns received on 28thNovember 2019 and later).  If a change to the TSR is required they are being amended.

For returns received more than 9 months ago, please submit an amendment to update the amount of TSR.

2019-2020 e-Filing Exclusion list

An exclusion has been added to the Known Self-assessment calculation errors list for 2019-2020, Exclusion 116.

Customers are required to complete paper returns to get the correct calculation.

2020/21 onwards

From 2020/21 onwards, the changes will be incorporated into the SA calculator.  Customers won’t have to provide any extra information, and the correct amount of relief will be calculated as part of the online tax return.

Earlier years

For periods before 2018-2019, returns should be filed on the basis of the legislation that applied at the time those returns were required to be made.

Guidance and/or examples to help answer your queries can be found on Gov.uk here, and in the Insurance Policyholder Taxation Manual (IPTM) at chapters 3820-3850.  

HMRC will be running Talking Shop Webinars during October/November on Top Slicing Relief.