Investment bonds · Guide overview

Top-slicing relief on investment bonds, explained

The relief that spreads a bond gain over the years you held it — and the PSA recalculation for gains from 2021/22 that moves £600 on a single offshore bond.

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5 min read · Last reviewed 23 Sept 2026

— In short

Top-slicing relief reduces the income tax on an investment-bond chargeable event gain by treating the gain as if it arose evenly over the complete years the bond was held, so less is pushed into higher-rate tax. It is a five-step calculation under ITTOIA 2005. For gains from 6 April 2021 the personal savings allowance is recalculated inside Step 4. A calculation that applies the pre-2021/22 method can give less relief.

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Calculators for this topic (4)

Top-slicing relief reduces the income tax on a chargeable event gain from an investment bond by treating the gain as if it arose evenly over the complete years the bond was held. It is a five-step calculation set by ITTOIA 2005 s.535–537. For gains from 6 April 2021 the personal savings allowance is recalculated inside Step 4 — a rule HMRC’s own manual set out only in a 2023 rewrite of IPTM3820, and the one our engine is built around.

How the relief is calculated

The five steps tax the whole gain, strip out the tax attributable to it, divide that gain by the number of complete years to get an annual “slice”, tax one slice at the member’s other income, and scale back up. Step 4 carries the detail that bites. For gains on or after 6 April 2021 the personal savings allowance and the starting-rate band are recalculated at the lower notional income of one slice, rather than carried forward from Step 1. More allowance at the slice means more relief.

The Step-4 PSA recalculation — a £90,000 offshore gain before any TAR over 6 complete years, £45,000 other income

Annual equivalent (gain ÷ 6): £15,000
Personal savings allowance at Step 1: £0
Personal savings allowance recalculated at Step 4: £500
Relief — pre-2021 method: £6,817
Relief — post-2021 method (correct): £7,417
Difference (post- vs pre-2021/22 method): £600

Worked-example basis: No time-apportioned reduction is due for any gain or policy shown. TAR is not calculated or applied. Raw gains are shown before any TAR.

The figures are the same on 2025/26 and 2026/27 bands. The calculator below runs a related, smaller offshore case (£60,000 gain before any TAR, six years, £35,000 other income) end to end — its own PSA still recalculates from £500 to £1,000 at Step 4, it just no longer moves the final relief figure once the deemed-tax credit (the s.531(1) deemed basic-rate deduction; see the IPTM3820 explainer) is correctly applied to both bond types.

Worked-example basis: No time-apportioned reduction is due for any gain or policy shown. TAR is not calculated or applied. Raw gains are shown before any TAR.

Try it — pre-loaded with the related £60,000 offshore case, not the £90,000 table abovechange any figure to recompute

Top-slicing relief£8,846

See the working

Worked example. Net additional tax due: £12,000.00

— Inputs

Gain, years, income.

Chargeable event gain

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

Complete years (N)Usually on the certificate. How is N counted?

Why we ask

Relevant years for slicing — usually on the certificate.

Non-savings income (gross)

Salary, pension, rent, self-employment, before personal allowance. Not interest or dividends.

Why we ask

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

Bond typeChanges the net tax, not the relief.

Why we ask

Changes the net tax, not the relief. The credited-onshore lane reduces the real liability; the ordinary offshore lane does not. The certificate's separate tax-treated-as-paid answer, next to the result, decides whether that lane is supported — bond type alone does not prove the s.530 credit.

Tax year of the eventSets the bands and allowances.

Why we ask

Sets the tax bands, Personal Savings Allowance and allowances for this tax year.

Add other income or details

Other savings income

All interest received. Not dividends or this bond gain.

Why we ask

Interest only — excludes dividends and the bond gain.

Dividend income

Dividends received. Not this bond gain.

Why we ask

Taxed at the dividend rates. Excludes the bond gain. An onshore gain is the highest part of income, above dividends; an offshore gain sits below dividends, except in the top-slicing relief calculation.

RAS pension contributions (gross)

Gross amount, including the tax the provider reclaims.

Why we ask

Total member relief-at-source contributions across every scheme in this tax year, grossed up. The relieved part extends the rate limits both in the client's actual liability and inside the top-slicing calculation (FA 2004 s.192(4)). Relief is limited to the greater of relevant UK earnings and £3,600 a year, so enter the earnings below when they are higher.

Relevant UK earnings (employment or self-employment, before tax)

Leave £0 if none: relief-at-source contributions are then limited to £3,600.

Why we ask

Employment income and self-employed or partnership trading profits (and some patent income); pension, investment and rental income are not relevant UK earnings, except furnished holiday lettings profits up to 2024-25. Relief on relief-at-source contributions is limited to the greater of these earnings and £3,600 a year. Contributions deducted from pay before tax use the same limit, and this estimate does not reduce the limit for them. It assumes the client was under 75 when paying, is an active member of a registered relief-at-source scheme and is a relevant UK individual.

Gift Aid donations (grossed up)

Cash donated × 1.25. Leave blank if none.

Why we ask

Qualifying Gift Aid only: cash donated plus the basic-rate tax the charity reclaims (normally cash × 1.25). It still extends the rate limits in the client's actual liability (ITA 2007 s.414(2)), but is ignored inside the top-slicing calculation (ITTOIA 2005 s.535(7)) — which is why it is entered separately from the pension contributions. Enter 0 if there was none. Left blank, the figures assume none, except that with RAS contributions entered the figures wait for this answer.

Is the client a Scottish taxpayer?

The gain is taxed UK-wide; Yes hides totals needing Scottish rates.

Why we ask

Scottish income tax rates apply to salary, pension and other non-savings income. A chargeable event gain is savings income, which is taxed at the same rates across the UK. Until answered, tax figures use England, Wales and Northern Ireland rates for non-savings income.

Does anything unusual apply?

Overseas residence, assignments, trusts, personal portfolio bonds and a few other cases.

Tick only what applies. Unticked, the figure names what it assumes.

A policy in this calculation is held on a charitable trust.
Why we ask
Is any policy in this calculation held on a charitable trust? Check this even when the gain would be entered under the settlor’s name. Charitable trusts are charged differently and this calculator does not work that out.
This tax year’s income includes a termination payment above the tax-free amount, or a lease premium or similar one-off property receipt (not ordinary rent).
Why we ask
Does the client’s income for this tax year include a termination payment taxed under ITEPA 2003 s.403, or a lease premium or similar receipt taxed under ITTOIA 2005 Part 3 Chapter 4? Top-slicing relief leaves those amounts out of total income (ITTOIA 2005 s.535(5)) while the tax due still counts them; this calculator uses one income figure for both. Only the part of a termination payment above the statutory exempt amount is taxed under s.403, and pay in lieu of notice taxed as earnings is not a s.403 amount.
HMRC IPTM3820 (opens in a new tab)
Any year of the policy (or one it replaced) was not fully UK resident, or it was ever assigned, held jointly or in trust.
Why we ask
Any year of non-UK residence, or the overseas part of a split year, in the life of the policy (or of one it replaced) can reduce the gain and, for each full 365 foreign days, the number of years used for top-slicing (ITTOIA 2005 ss.528 and 536(7); HMRC IPTM3732). An assignment, joint ownership or a trust can bring in days before the client owned the policy, or someone else’s residence (ss.528(5)–(11); IPTM3731, IPTM3733). This calculator does not work any of that out, and assuming none applies can overstate the relief, so the figure says it assumes none. If you have checked and none of that applies, leave this unticked.
HMRC IPTM3732 (opens in a new tab)
This gain, or income entered, includes a yearly deemed personal portfolio bond gain.
Why we ask
The gain is a yearly (annual deemed) personal portfolio bond gain, or the income entered includes one. Yearly personal portfolio bond gains get no top-slicing relief and are ignored in working out relief on other gains; their certificate always shows 1 year (ITTOIA 2005 ss.525(2), 535(6); HMRC IPTM7560). This calculator does not model them. A surrender, part surrender, excess event, maturity, death or assignment gain qualifies, even on a personal portfolio bond.
HMRC IPTM7560 (opens in a new tab)

Offshore bond · 2025/26Illustration — worked example. Edit a figure to use your own, and tick anything in the checklist that applies; the relief does not wait for the certificate answer, but the real liability and the net tax depend on it, so set it to match your policy.

Top-slicing relief

£8,846

Net additional tax due after relief: £12,000.00

Assumes none of: a policy held on a charitable trust; a termination payment taxed under ITEPA s.403, or a lease premium or similar receipt taxed as property income, in the client’s income for the year; any tax year of non-UK residence (including a split year), or an assignment, joint ownership or trust, that could give a time-apportioned reduction; a yearly deemed gain on a personal portfolio bond.

Assumes no savings interest, no dividends, no pension paid net of tax, no Gift Aid and England, Wales and Northern Ireland income tax rates.

Confirm before relying on this

Income tax treated as paid?Copy the Yes/No from the certificate.

Why we ask

Confirm the chargeable-event certificate's exact “income tax treated as paid” Yes/No entry for every gain. Bond type alone does not prove the ITTOIA 2005 s.530 credit.

Scottish taxpayer status is unanswered. Tax figures use England, Wales and Northern Ireland rates for non-savings income. Choose Yes under Add other income or details if the client is a Scottish taxpayer.

How the gain uses the tax bands

Same taxpayer, two computations: the whole gain in income, and one year's slice at notional income. Heights share one £ scale.

The whole gain in income£95,000.00

PSA £500.00 · 0%

Step 1 — full gain stacked on incometax before credits £25,332.00

One year's slice (÷ 6)£45,000.00

PSA £1,000.00 · 0%

Step 4 — notional income with one slicetax before credits £6,286.00

The recalc, visibly: the full-gain stack earns £500.00 of PSA; the slice stack earns £1,000.00 — the mint band widens at Step 4.

Personal allowance (0%)Nil-rate allowance (PSA/SRB, 0%)Basic-rate territoryHigherAdditional

Slices thinner than the drawing can show are enlarged to a visible minimum — the table below carries the exact figures.

The five steps

Tax payable with the whole gain in income, before top-slicing relief£25,332.00

Less: basic-rate tax treated as paid (applied in the relief calculation only, ITTOIA 2005 s.531(1))−£12,000.00

Relief basis · full-gain subtotal (tax on other income + attributable tax)£13,332.00

Relief basis · tax on other income (allowances at their with-gain level)£4,486.00

1–2 · Tax attributable to the gain (the gain’s tax less the basic-rate tax treated as paid)£8,846.00

3 · Annual equivalent (gain ÷ 6)£10,000.00

4 · Tax on slice at notional income, less basic-rate tax treated as paid£0.00

Relieved liability (× 6)£0.00

5 · Relief (attributable tax − relieved liability)£8,846.00

Band by band — Steps 1 & 4

Band	In band	Rate	Tax
Step 1 — full gain in income
Personal allowance · non-savings	£12,570.00	0%	£0.00
Basic rate · non-savings	£22,430.00	20%	£4,486.00
Personal savings allowance · savings	£500.00	0%	£0.00
Basic rate · savings	£14,770.00	20%	£2,954.00
Higher rate · savings	£44,730.00	40%	£17,892.00
Totals (tax shown before credits)	£95,000.00		£25,332.00
Step 4 — notional income with one slice
Personal allowance · non-savings	£12,570.00	0%	£0.00
Basic rate · non-savings	£22,430.00	20%	£4,486.00
Personal savings allowance · savings	£1,000.00	0%	£0.00
Basic rate · savings	£9,000.00	20%	£1,800.00
Totals (tax shown before credits)	£45,000.00		£6,286.00

Personal savings allowance at Steps 1 and 4

PSA at Step 1 (full income + gain): £500.00
PSA at Step 4 (notional income + slice): £1,000.00

Step 4 recalculates the personal savings allowance and the starting rate for savings at the slice (IPTM3820, gains from 6 April 2021). Personal savings allowance £500.00 on the full gain, £1,000.00 on the slice. This page applies that rule.

This calculation assumes the client made no personal (relief-at-source) pension contributions or Gift Aid donations this year. If they did, the basic and higher rate limits are extended by the grossed-up amount (FA 2004 s.192(4); ITA 2007 s.414(2)) and adjusted net income falls by it (ITA 2007 s.58), which can restore personal allowance. Together these change how the gain is taxed: the net tax due on it can be higher or lower. Supply the grossed-up total to compute the exact figure.

IPTM3820

Open the full Top-Slicing Relief calculator →

Inputs stay in this browser for 15 minutes after continuing. Open the original example in the top-slicing relief calculator instead.

The full derivation is in How top-slicing relief treats the savings allowances (IPTM3820); the Top-Slicing Relief calculator runs all five steps. (IPTM3820; ITTOIA 2005 s.535–537.)

Each step is worked through on one offshore bond in how to calculate top-slicing relief. The tax left to pay after the relief differs by bond type: the onshore bond tax calculator and the offshore bond tax calculator work it out where no TAR is due.

Put this to work.

Open the Top-Slicing Relief calculator and enter your client's figures. Top-Slicing Relief calculator Your inputs from a matching calculator above will follow this link.

Create a free account for guided calculations, no card needed. Where a calculator offers a compliance annex PDF, the annex sets out the calculation and its HMRC references, with your firm’s name on every page. If you have edited a calculator here, those inputs stay in this browser for 15 minutes after you click below.

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Use made-up figures until your firm holds our DPA.

Sample compliance annex for a fictional client

See a sample annex, worked example for 2025-26 (PDF)

It starts with the chargeable event gain

Relief is only as right as the gain it works on. On a full surrender the gain is the surrender value plus earlier withdrawals, minus the premiums paid and any previous chargeable gains. Part surrenders use the cumulative 5% allowance, and can throw up a gain even when the bond has lost money. Surrendering whole segments instead is a full surrender of those segments, so the gain is based on their actual performance rather than the 5% allowance calculation.

Build the gain with the Chargeable Event Gain calculator; the two traps are worked in The 5% allowance trap on investment bonds and Part surrender vs segment surrender. (IPTM3510 / 3540 / 3560; IPTM7330 for segments; ITTOIA 2005 s.491 / s.507.)

More than one gain in a tax year

When several gains land in the same year, each keeps its own number of complete years. The slices are summed, the tax on that total slice is scaled back up by total gains ÷ total slice, and the result is compared with the full liability (IPTM3840). On HMRC’s two-gain example (IPTM3850 Example 2) the method gives relief of £8,185.20. A gain-weighted-average-N shortcut gives a different, wrong answer. It is worked in Two bond gains in one tax year.

Worked-example basis: No time-apportioned reduction is due for any gain or policy shown. TAR is not calculated or applied. Raw gains are shown before any TAR.

Common questions

What is top-slicing relief?

A relief that reduces the income tax on an investment-bond chargeable event gain by spreading the gain over the complete years the bond was held, so less of it is pushed into higher-rate tax. It is set out in ITTOIA 2005 s.535–537 and HMRC manual IPTM3820.

How is top-slicing relief calculated?

In five steps: tax the full gain; find the tax attributable to it; divide the gain by the complete years to get a slice; tax one slice at the member’s other income (recalculating the savings allowances at that level for gains from 6 April 2021) and scale up; the relief is the difference, floored at zero.

How does top-slicing relief treat the savings allowances?

For gains on or after 6 April 2021 the personal savings allowance and starting-rate band are recalculated at the slice level in Step 4 rather than carried from Step 1 (IPTM3820). On the worked offshore case it is worth £600. HMRC’s manual set the rule out in a 2023 rewrite of IPTM3820; before that it said these allowances were not adjusted for the sliced gain.

Does top-slicing relief reduce adjusted net income?

No. The full chargeable event gain is included in adjusted net income, so it can still abate the personal allowance for the year. Top-slicing relief reduces the tax charged on the gain; it does not reduce the income figure itself. The two are separate mechanisms.

Want to run the calculation end to end? Sign in free and the bond workbench runs the same five steps and produces a compliance-annex PDF with the IPTM references; your logo and colours appear on Pro and Firm. For planning and illustration only; this guide does not constitute financial or tax advice.

Sources

Based on HMRC’s Insurance Policyholder Taxation Manual (IPTM3820, IPTM3840, IPTM3850) and ITTOIA 2005 s.535–537.

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