Income Tax (Trading and Other Income) Act 2005 section 537

Top slicing relieved liability: two or more chargeable events

Section 537 sets out how to calculate the relieved liability under top slicing relief when an individual has gains from two or more chargeable events on life insurance policies (or similar contracts) in the same tax year.

• The annual equivalents (each gain divided by the number of years the policy has been held) for all chargeable events in the year are added together to produce a single total annual equivalent.
• Income tax is calculated on that total annual equivalent as though it were the top slice of the individual's income, and the basic rate tax credit already deemed paid is subtracted, giving a total relieved liability on the total annual equivalent.
• That total relieved liability is then scaled up by multiplying it by the total chargeable gains and dividing by the total annual equivalent — effectively producing a weighted-average result that reflects the different durations of the underlying policies.
• The resulting figure is compared with the full (unrelieved) tax liability on the gains to determine how much top slicing relief the individual receives.