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Time Apportionment Relief
and Top-Slicing Relief

Time Apportionment Relief
Time apportionment relief (TAR) is available to Offshore Bond policyholders who have been non – UK resident during the policy term and have a tax chargeable gain to allow them to claim tax relief.

TAR can be used to reduce the chargeable event gain that is assessed for income tax in accordance with the number of days the policyholder owned the bond while being a non-UK resident.

The TAR rules which apply to Offshore Bonds allow the bond owner to claim TAR in respect of any period they have been non-resident since the bond started. It does not matter whether they actually owned the bond themselves during the period of non-residence or when the assets were deposited or transferred into the bond.

Time Apportionment Relief (TAR) Calculation:

Example: Mr Smith returned to the UK on 1st January 2014 having worked in Dubai and Hong Kong since August 2007. During his time in Dubai he invested £150,000 in an Offshore Bond on 1st January 2009. After deciding to stay in the UK he decides to buy a property and so on January 1st 2016 he surrenders his bond now valued at £250,000 thus making a chargeable gain of £100,000 as no previous withdrawals have been taken.

Therefore, in the example above the client is only liable for tax on £40,000 of the £250,000 withdrawn from the offshore bond at his marginal rate with the remaining £210,000 paid tax free thanks to utilising Time Apportionment Relief. This gain can also be further reduced using top slicing.

Top Slicing Relief.

Top slicing relief is available for those who are liable for higher rate or additional rate tax only after the chargeable gain has been added to their income. Top slicing relief can be applied to the chargeable gain for any complete policy years the policyholder was a UK resident. They cannot claim top slicing relief for the time they are UK non-resident.

Example: Mr Smith returned to the UK on 1st January 2014 having worked in Dubai and Hong Kong since August 2007. During his time in Dubai he invested £150,000 in an Offshore Bond on 1st January 2009. After deciding to stay in the UK he decides to buy a property and so on January 1st 2016 he surrenders his bond now valued at £250,000 thus making a chargeable gain of £100,000 as no previous withdrawals have been taken. After Time Apportionment Relief (see example above) he has a taxable gain of £40,000.

Top Sliced Gain Calculation:

£40,000 / 2 = £20,000 added to the policyholder’s income (as the bond has been held for 2 full policy years while Mr Smith was a UK resident) and taxed at their marginal rate.

Depending on income status the taxable gain is added to other taxable income for the tax year that the surrender is made and tax paid accordingly, therefore continuing the above example:

a.

Where Mr Smith is a basic rate tax payer with taxable earnings (after deduction of his personal allowance) of £28,000:

Tax due at basic rate @ 20% on £4,000 therefore tax due = £800

Tax due at higher rate @ 40% on £16,000 therefore tax due = £6,400

Total tax due on surrender of the £250,000 investment = £7,200

b.

Where Mr Smith is a higher rate tax payer with taxable earnings (after deduction of his personal allowance) of £80,000:

Tax due at higher rate @ 40% on £20,000 therefore tax due = £8,000

Total tax due on surrender of the £250,000 investment = £8,000

Either way the benefits of Time Apportionment Relief and Top Slicing Relief are huge for offshore investors looking to utilise their money in the most tax efficient way possible.

Note: Where a policyholder is likely to remain a non-resident, Chase Buchanan will provide information on tax rules in the country of residence and the effects of any double tax treaty in place.