A slice of good news may create a repayment opportunity

Life assurance bonds are subject to certain trigger events including: death of the insured, maturity, surrender (including partial), sale or assignment that may give rise to a Chargeable Event Gain (CEG). The whole gain is subject to Income Tax in the year of the event. Top slicing relief (TSR) allows the gain to be annualised to potentially reduce or eliminate liabilities to higher or additional rate tax.

The method of calculating TSR has evolved. The introduction of tapering of the personal allowance for individuals with an income of £100,000 or more, and the introduction of the personal savings allowance, resulted in the need to undertake a series of prescribed steps to calculate the relief. The interaction of these changes with existing legislation for calculating TSR was the subject of a tax case Marina Silver v HMRC [2019] UKFTT 263 (TC), where the Tribunal ruled in favour of the taxpayer.

HMRC initially appealed the decision to the Upper Tribunal before withdrawing its appeal and instead revised the TSR legislation to amend how the calculation operates.

The revision was announced in the March 2020 Budget and introduced in Finance Act 2020. The legislation was intended to apply to the 2019/20 and subsequent tax years. HMRC by concession also extended it to cover the 2018/19 tax year. However, HMRC maintained that their interpretation of the legislation for 2017/18 and earlier years remained unchanged, and was based on practice generally prevailing at the time.

This position was challenged in a recent tax case Sally Judges v HMRC [2022] UKFTT 77 (TC) where the First-tier Tribunal considered the same TSR questions as in the Silver case, and reached the same conclusion. Importantly, the case which related to the 2017/18 tax year also confirmed that the legislation introduced in 2020 (at s37 Finance Act (FA) 2020 removing beneficial ordering) was not clarification of existing legislation and did not have retrospective effect.

The decision was handed down on 18 February 2022 and it is within the statutory 56-day appeal period for HMRC to challenge it.

The important takeaway point is for anybody who submitted a 2017/18 return which contained a CEG to revisit the return as they are still able to submit a protective claim for tax relief to HMRC before 5 April 2022.