Ensure tax stays in a lower band

Investment bonds

Top slicing attempts to average the rate of tax so that a policyholder's gain is not treated as income for a single year where it pushes them into the higher tax band

The gain on a life assurance policy (that is, investment bond) accrues over the full term of the policy in line with the growth in value of the linked investments. However, the gain on a life policy is taxed in a single year, usually the year in which it is fully surrendered. Value which has been accruing within the policy while the policyholder was a basic rate taxpayer could be effectively taxed at the higher rate. The tax code recognises that it would be rather unfair to treat the total gain as the policyholder's income for a single year where that gain pushes him or her into the highe...