In Sally Judges (as representative for the late R Young) v HMRC  TC08408, the First Tier Tribunal (FTT) found that changes to top slicing relief introduced by Finance Act 2020 were not retrospective in their effect.
- Mr Young passed away on 3 March 2018. Mrs Judges was his representative.
- In the 2017-18 tax year, to the date of death, Mr Young received a pension income of £49,460, savings income of £185 and dividend income of £52.
- A single Chargeable event gain of £232,275 also arose on three life insurance policies in 2017-18: two had been held for 23 years and one for 22 years.
- Mr Young’s 2017-18 tax return was submitted on 30 April 2019 using HMRC’s self-assessment calculator.
- An appeal was made in the white space against the Top slicing relief permitted by the calculator.
- Calculations were provided to HMRC by letter on 21 May 2019 which reflected Mrs Judges’ understanding of the statutory basis for calculating top slicing relief. Relief of £50,939 was claimed on the basis that Mr Young was:
- Entitled to allocate his personal allowance against his sources of income in a way that achieved the lowest Income Tax liability (beneficial ordering).
- Not precluded from claiming the personal Savings allowance by reference to the annual equivalent of the chargeable event gain.
- HMRC opened an enquiry in July 2020, before issuing a closure notice in September 2020 which reduced top slicing relief to £6,176.
- Mrs Judges Appealed to the First Tier Tribunal (FTT).
Following the FTT case of Mariana Silver in 2019, the top slicing relief calculation was amended by Finance Act 2020, with effect from 11 March 2020. These amendments included:
- Preventing beneficial ordering from applying to the top slicing relief calculation: allowances and reliefs must as far as possible be set against other income first, in preference to the gain.
- Clarifying that when determining the amount of an individual’s personal allowance, the chargeable event gain to be taken into account is the annual equivalent gain, not the whole gain.
HMRC’s position, in this case, was effectively that these changes had a retrospective effect.
The FTT allowed Mrs Judges’ appeal, finding that:
- The legislation introduced in March 2020 did not have a retrospective effect and was not a clarification of existing legislation.
- When calculating tax due on the gains realised by Mr Young in 2017-18:
- Beneficial ordering applied.
- Mr Young was entitled to take account of the personal savings allowance.
Useful guides on this topic
Investment bonds: A tax guide
How are investment bonds taxed? What are the problems and pitfalls to be aware of?
Top Slicing Relief: How you slice it
What is Top Slicing Relief? When does it apply?
How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?