Time-apportionment relief: reducing a bond gain for qualifying foreign days

A qualifying bond gain may not be fully chargeable where the material-interest period includes foreign days. Time-apportionment relief reduces the gain by the qualifying foreign-days fraction. Identifying that fraction requires more than asking whether the person now liable once lived abroad.

The rule

Under ITTOIA 2005 s.528 (IPTM3732), the reduction is the gain multiplied by foreign days divided by total days in the material-interest period. Stated as the amount left chargeable: full gain × (non-foreign days ÷ total days). Before applying that fraction, identify the individual or individuals with the material interest during each part of the period.

Whose foreign days count?

IPTM3732–IPTM3735 make this a rights-and-history question. Beneficial ownership, an assignment (including between spouses or civil partners), shared rights, use of the policy as security, a non-charitable trust and an estate can change who has the material interest and when. A statement that someone was UK-resident throughout is therefore not, by itself, proof that no reduction is due.

UK policies can qualify too

Before 6 April 2013 the relief was confined to policies issued by foreign insurers. IPTM3731 confirms that from that date it extends to policies issued by UK insurers. The post-2013 rules generally cover policies issued on or after 6 April 2013. An older policy can also enter them after certain post-2013 events, including a variation increasing benefits, an assignment to the individual or into or out of a trust (HMRC IPTM3731 counts both), or the policy becoming security for their debt. Product origin alone no longer decides the answer.

A worked example

Illustrative (a transparent application of the s.528 proportion — ParaplanAI does not yet compute time-apportionment, so this is not an engine figure): a £60,000 qualifying gain before any TAR over a ten-year term, with unchanged sole beneficial ownership, no assignment, security, trust or estate event, and the relevant individual non-UK-resident for three of those years.

The £18,000 attributable to the non-resident years drops out, leaving £42,000 chargeable. Top-slicing relief then uses that reduced gain and a reduced N: foreign days ÷ 365, rounded down, come off the complete years (ITTOIA 2005 s.536(7); IPTM3736) — here N falls from 10 to 7, so the slice is £6,000, not £4,200. Using the full ten years with the reduced gain overstates the relief.

The common error

Two errors recur: assuming a UK-issued policy can never qualify, and applying the post-2013 rules to an older policy without checking for the required variation, assignment or security event. The first can materially overstate the gain; the second can grant a reduction the facts do not support. A third is checking residence but not the beneficial-ownership, assignment, security, trust or estate history that identifies the material interest. Product origin and the full rights-and-residence history are relevant. The product differences are explained in onshore vs offshore bonds; build the underlying gain on the chargeable event gain calculator. (ParaplanAI computes the gain and top-slicing; the time-apportionment reduction — to both the gain and N — is applied manually for now.) Where no reduction is due, the offshore bond tax calculator prices the tax on an offshore gain, after top-slicing relief where an individual is chargeable; it does not calculate the reduction.

ITTOIA 2005 s.528 · ITTOIA 2005 s.536(7) (N reduced for foreign days) · IPTM3731–IPTM3736 (time apportionment) — figure illustrative, not engine-computed