Briefing Notes Chargeable Gains Rate Bands 680 392

Chargeable gains, the SRSB and PSA briefing note

Learn how chargeable gains are set against the starting rate band and the personal savings allowance.

There is a 0% personal savings allowance of up to £1,000 in addition to the £12,570 personal allowance and the £5,000 starting rate band.

When looking at an individual’s tax position, non-savings income such as income from employment, rental income and pension income, is taxed first. Therefore, the personal allowance is set against non-savings income first, followed by savings and dividend income applied in the most beneficial way for the taxpayer. Chargeable gains from both offshore and onshore bonds are treated as “savings income”. However, chargeable gains from an onshore bond carry a 20% tax credit. How will the personal allowance, starting rate band and personal savings allowance affect the taxation of chargeable event gains on both offshore and onshore bonds?

   
Personal Allowance £12,570* taxed at 0%
up to £37,700 taxed at 20%
£37,700 to £150,000 taxed at 40%
Income over £150,000 taxed at 45%
Starting rate band for savings up to £5,000 – taxed at 0% if an individual’s non-savings income does not exceed £17,570.
Personal Savings Allowance**  
£1,000 (basic rate taxpayer)  
£500 (higher rate taxpayer)  
£0 (additional taxpayer)  

*for every £2 of income over £100,000 the personal allowance is reduced by £1. Within the top-slicing calculation personal allowance entitlement is calculated by reference to the top-sliced gain.

**When calculating entitlement to personal savings allowance it is the total chargeable gain and not the top-sliced gain that is used.

 

The following examples all assume that the policyholder has no other savings income and no dividend income.

(1) Onshore Offshore
No non-savings income Chargeable gain = £17,570 Chargeable gain
£12,570 @ 0% = 0
£5,000 @ 0% = 0
Chargeable gain
£12,570 @ 0% = 0
£5,000 @ 0% = 0
  No tax to pay and tax credit cannot be reclaimed No tax to pay
(2) Onshore Offshore
Non-savings income £15,070
Chargeable gain = £30,000
Non-savings income £12,570 @ 0% = 0
£2,500 @ 20% = £500

Chargeable gain
£2,5001 @ 0% = 0
£1,0002 @ 0% = 0
£26,500 @ 20% = £5,300

Total tax on gain = £5,300 Less tax credit £6,000 (£30,000 @ 20%) Restricted to actual tax payable3 £5,300
Non-savings income £12,570 @ 0% = 0
£2,500 @ 20% = £500

Chargeable gain
£2,5001 @ 0% = 0
£1,0002 @ 0% = 0
£26,500 @ 20% = £5,300
  Total tax payable = £500 Total tax payable = £5,800
  1. As the non-savings income is £15,070 the starting rate band is restricted to £2,500
  2. Personal savings allowance
  3. The tax credit is deducted from the total tax liability; however it is restricted to the amount of tax actually payable
(3) Onshore Offshore
Non-savings income £20,070*
Chargeable gain £30,000
Non-savings income £12,570 @ 0% = 0
£7,500 @ 20% = £1,500

Chargeable gain
£1,000 @ 0% = 0
£29,000 @ 20% = £5,800

Total tax on gain = £5,800 Less tax credit £6,000 (£30,000 @ 20%) Restricted to actual tax payable £5,800
Non-savings income £12,570 @ 0% = 0
£7,500 @ 20% = £1,500

Chargeable gain
£1,000 @ 0% = 0
£29,000 @ 20% = £5,800
  Total tax payable = £1,500 Total tax payable = £7,300

* As the non-savings income exceeds the personal allowance plus the starting rate band, the starting rate band is unavailable

(4) Onshore Offshore
Non-savings income £30,070
Chargeable gain £30,000
Bond held over 3 years
Non-savings income £12,570 @ 0% = 0 £17,500 @ 20% = £3,500

Chargeable gain
£500* @ 0% = 0
£19,700 @ 20% = £3,940 £9,800 @ 40% = £3,920

Total tax on gain = £7,860 Less tax credit £6,000 (£30,000 @ 20%)
Total tax on gain = £1,860

Total tax payable = £3,500 + £1,860 = £5,360
Non-savings income £12,570 @ 0% = 0 £17,500 @ 20% = £3,500

Chargeable gain
£500* @ 0% = 0
£19,700 @ 20% = £3,940 £9,800 @ 40% = £3,920

Total tax on gain = £7,860

Total tax payable = £3,500 + £7,860 = £11,360
 

Top slicing relief
Tax due on gain = £7,860
Less tax credit £6,000 (£30,000 @ 20%)
Total tax on gain = £1,860

Top sliced gain = £30,000/3 = £10,000
£500* @ 0% = £0
£9,500 @ 20% = £1,900

Less tax credit £2,000 (£10,000 @ 20%)
Restricted to actual tax payable £1,900 = £0

£0 x 3 years = £0


Top slicing relief £1,860 - £0 = £1,860

  Total tax payable after top slicing = £5,400 - £1,900 = £3,500 Total tax payable after top slicing = £11,400 - £1,900 = £9,500

* As the total income is in the higher rate tax bracket the personal savings allowance is reduced to £500

This briefing note is also available as a PDF

This document is based on Canada Life’s understanding of applicable UK tax legislation and current HM Revenue & Custom’s practice, as at March 2021 and could be subject to change in the future. It is provided for professional advisers only. Any recommendations are the adviser’s sole responsibility.