Chargeable event gains, the starting rate band and the personal savings allowance

Briefing Note

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 for savings 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 and due to this are taxed as the highest part of an individual's income.. How will the personal allowance, starting rate for savings 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 £125,140	taxed at 40%
Income over £125,140	taxed at 45%

Starting rate for savings band (SRSB) up to £5,000. The first £5,000 of savings income is taxed at 0%, if an individual has non-savings non-dividend income and this does not exceed the combined total of their personal allowance plus £5,000. The SRSB of £5,000 is reduced by £1 for every £1 of nonsavings income above the personal allowance.

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.

When calculating entitlement to personal allowance, starting rate for savings band and personal savings allowance, in the main income tax calculation, it is the whole chargeable gain and not the top-sliced gain that is used. In the top slicing calculation, the personal allowance, starting rate for savings band and personal savings allowance entitlement is recalculated based on the top sliced gain.