How is top-slicing relief calculated?

In five steps (IPTM3820): work out the tax with the whole gain included, then the tax on a single year’s “slice” of the gain added to other income, scale that back up by the number of complete years, and the relief is the difference. It removes the penalty of taxing the gain in one year.

What is the “slice” in top-slicing relief?

The annual equivalent: the gain divided by the number of complete years the policy ran. On a £60,000 gain over six years the slice is £10,000. The tax is worked on the slice and scaled up, which can keep the member in a lower band than the whole gain would.

What changed in 2021?

For gains on or after 6 April 2021, the personal savings allowance and personal allowance are recalculated at the notional income level used at Step 4, rather than carried from the full-gain calculation. On a band-crossing case this can move the relief by hundreds of pounds.

Does top-slicing relief apply to onshore and offshore bonds?

Both. The five steps are the same; the difference is that an onshore bond carries a notional 20% tax credit that an offshore bond doesn’t, which affects the final tax payable but not the structure of the relief.

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How to calculate top-slicing relief: the five steps

The relief has a fixed five-step shape. Here it is start to finish on a single offshore bond, every figure pinned to the case our engine regression-tests against.

6 min read · Last reviewed 16 Jun 2026

Top-slicing relief stops a bond gain being taxed as if it all arose in one year. It has a fixed five-step shape (IPTM3820; ITTOIA 2005 ss.535–537): work out the tax with the whole gain in, work out the tax with only one year's “slice” in, and the relief bridges the gap. Here it is end to end on one offshore bond.

The case

An offshore bond is fully surrendered in 2025/26. The gain is £60,000, built over six complete years, so the annual equivalent — the slice — is £10,000. The member has £35,000 of other income. These are the engine's regression figures (corpus row IPTM-EX-03-OFFSHORE), not round illustrations.

The five steps

Step 1 — total liability.Work out the member's income tax for the year with the whole £60,000 gain included, as the top slice of income. Step 2 — tax on the gain. Strip out the tax attributable to the gain itself. Step 3 — the “relieved” figure begins: compute the tax on the gain with the full gain in income — here total income is £95,000, so the member is higher-rate and the personal savings allowance is £500.

Step 4 — the annual equivalent. Now compute the tax on just one slice — £10,000 — added to the other income. Notional income is £45,000, basic-rate, so the PSA here is recomputed to £1,000 (for gains on or after 6 April 2021, the PSA and personal allowance are recalculated at this notional level — the rule HMRC confirmed in 2021). Multiply that per-slice tax back up by the six years. Step 5 — the relief is the difference between the tax on the gain at Step 3 and the annual-equivalent tax at Step 4.

Top-slicing relief, five steps — IPTM-EX-03-OFFSHORE · 2025/26

Chargeable gain: £60,000
Complete years (N): 6
Annual equivalent (slice): £10,000
Other income: £35,000
PSA with full gain in (Step 3): £500
PSA with only the slice in (Step 4): £1,000
Tax attributable to the gain (Step 3): £20,846
Relieved liability: £10,800
Top-slicing relief (Step 5): £10,046

Try it — pre-loaded with HMRC’s offshore worked example (IPTM-EX-03)change any figure to recompute

— Inputs

Gain, years, income.

Chargeable event gain

From the certificate, or the chargeable-event-gain calculator.

Complete years (N)

Relevant years for slicing — usually on the certificate.

Non-savings income (gross)

Salary, pension, self-employment, rental — gross, before the personal allowance.

Other savings income

Interest only — excludes dividends and the bond gain.

Dividend income

Taxed at the dividend rates as the top slice. Excludes the bond gain.

Bond type

Onshore bonds carry a deemed 20% basic-rate credit; offshore do not.

Tax year of the event

Drives the bands, PSA and allowances — versioned per-year config.

Need the gain first? Run the chargeable event gain calculator and bring the figure here.

Open the full top-slicing relief calculator →

The relief here is £10,046 — the gap between being taxed on the gain as one £60,000 lump and being taxed on it a slice at a time. The single most common error is at Step 4: carrying the Step-3 PSA of £500 into Step 4 instead of recomputing it to £1,000. That one slip understates the relief by £600 on this case (and on offshore bonds it isn't masked by the notional credit). Run any case end to end — both PSA figures shown — on the top-slicing relief calculator, confirm the gain and slice first on the chargeable event gain calculator, and, signed in, print the five-step working to a compliance-annex PDF. The 2021 change is unpacked in the IPTM3820 explainer.

IPTM3820 (the five steps) · ITTOIA 2005 ss.535–537 · HMRC Agent Update 83 (April 2021) (Step-4 PSA/PA recompute)

Common questions

How is top-slicing relief calculated?: In five steps (IPTM3820): work out the tax with the whole gain included, then the tax on a single year’s “slice” of the gain added to other income, scale that back up by the number of complete years, and the relief is the difference. It removes the penalty of taxing the gain in one year.
What is the “slice” in top-slicing relief?: The annual equivalent: the gain divided by the number of complete years the policy ran. On a £60,000 gain over six years the slice is £10,000. The tax is worked on the slice and scaled up, which can keep the member in a lower band than the whole gain would.
What changed in 2021?: For gains on or after 6 April 2021, the personal savings allowance and personal allowance are recalculated at the notional income level used at Step 4, rather than carried from the full-gain calculation. On a band-crossing case this can move the relief by hundreds of pounds.
Does top-slicing relief apply to onshore and offshore bonds?: Both. The five steps are the same; the difference is that an onshore bond carries a notional 20% tax credit that an offshore bond doesn’t, which affects the final tax payable but not the structure of the relief.

Sources & grounding

Worked figures: engine corpus row IPTM-EX-03-OFFSHORE (app/calc-engine/corpus/iptm-corpus.json) — £60,000 gain, 6 complete years, £10,000 slice, £35,000 other income; PSA £500 at Step 3 and £1,000 at Step 4; tax attributable to the gain £20,846; relieved liability £10,800; top-slicing relief £10,046. The engine’s load-bearing regression anchor (0p tolerance), re-used from the published IPTM3820 explainer.
Step structure: HMRC IPTM3820 (the five steps) and ITTOIA 2005 ss.535–537. The Step-4 PSA/PA recompute for gains on/after 6 April 2021 per IPTM3820 / HMRC Agent Update 83 (2021).

For planning and illustration purposes only. Verify all inputs against source documents. This explainer does not constitute financial or tax advice.