Where a partial withdrawal above the cumulative 5% allowance is taken from an international bond, the top slicing factor is always counted from the outset, even if there has been a previous excess. However, it appears that the legislation for this was changed inadvertently in the Finance Act 2013. Although the Association of British Insurers has suggested to HMRC that this is an error that needs to be corrected, it seems that there is no intention to do so and that the legislation will remain as it is.
To summarise, where an international bond has been taken out on or after 6 April 2013 (or, if taken out before then, has been varied, assigned or held as a security for a debt after that date), the top slicing factor will be calculated in the same way as it is on a UK policy – in other words, where a partial withdrawal above the cumulative 5% allowance is taken, the top slicing factor will be counted from the outset or, if later, from any previous excess event.
At the time of writing, HMRC’s Insurance Policyholder Taxation Manual has yet to be updated to reflect the above change, but HMRC have said that it is their intention to do so.
Advisers who have clients affected by the change should ensure that the appropriate top slicing factor has been used.