Tax on multiple bond gains

Last updated 6 April 2026

Key points

All bond gains in the tax year are aggregated and taxed in accordance with the normal order of income rules
There is a separate method for calculating top slicing relief where multiple gains with differing top slicing periods arise in the same tax year
HMRC revised their guidance on the availability of the personal allowance in calculating of top slice relief for all gains from 2018/19 onwards.

Multiple bond gains

Gains in the same tax year will generally be added together to calculate the income tax liability. However, if there is a combination of onshore and offshore gains the order in which they are taxed will differ to reflect that onshore bonds will benefit from 20% a non-reclaimable tax credit for tax paid within the fund. The order of taxation is as follows;

Non-savings income (inc. salary, pension, profits from trade, rent)
Savings income (inc. interest and offshore bond gains)
Dividends
Onshore bond gains

Top-slicing relief

Top-slicing relief can be used if the total of all gains for the tax year when added to other income is greater than the higher rate tax threshold.

Where a policyholder creates multiple chargeable gains in the same tax year, each with different top slicing periods, the calculation of top slicing relief is slightly different from a single bond gain.

The relief is still the difference between the tax payable on the full gains (the ‘total liability’) and the tax payable on the averaged gains (the ‘relieved liability’).

However, it's not possible to determine the relieved liability by multiplying the tax on the averaged gains by the top slicing period if each bond has been in force for a different period. Instead, the tax on the averaged gains is multiplied by proportion of the aggregate full gains over the aggregate slices. This relieved liability is then deducted from the total liability in the normal way to arrive at the amount of top slicing relief available. This is explained in the example below.

The calculation can be summarised in the following steps:

Steps	Method
Step 1 - Calculate the total tax liability	Add together all income chargeable to income tax to determine taxpayer's entitlement to the personal allowance (PA), personal savings allowance (PSA) and starting rate band for savings (SRBS) Calculate income tax using the normal order of income rules with the full bond gains Unused allowances can be set against bond gains
Step 2 - Calculate top slicing relief (TSR)	Total liability (2a) less relieved liability (2b) - see below
Step 2a - Calculate the 'total liability' on the full bond gains	Treat all gains (both onshore and offshore) as the highest part of income Unused allowances can be set against bond gains Deduct basic rate tax deemed paid (for both onshore and offshore bonds) The deemed basic rate tax paid is: (total gains – unused personal allowance) x 20%
Step 2b - Calculate the tax on the aggregate averaged bond gains	Treat averaged gains as highest part of income Unused allowances can be set against bond gains Available allowances determined by total income plus the aggregate of the averaged gains (where one or more of the gains arose after 6 April 2018) Deduct basic rate tax deemed paid on the sliced gain (both onshore and offshore) The deemed basic rate tax paid is: (total average gains – unused personal allowance) x 20% Multiply the tax on the averaged gains by the proportion of the full gains/averaged gains
Step 3 - Calculate the top slicing relief	Deduct the relieved liability (step 2b) from the total liability (step 2a)
Step 4 - Deduct the relief from the full tax liability	Calculate the total tax due on all income using the normal order of income rules Offshore bond gains are included with savings income (and before dividends) Onshore bond gains are the highest part of income (and after dividends) Top slicing relief is applied as a 'tax reducer', i.e. deducted from the tax bill

Example - James has a salary of £35,140 for 2026/27. He surrenders two bonds, the first an offshore bond with a chargeable gain of £60,000 which has been held for ten policy years. The second onshore bond has a gain of £30,000 and has been held for two policy years.

Entitlement to allowances:

James will have no personal allowance to use in any calculations involving full bond gains. This is because his total income, including the full bond gains, is £125,140 (PA is reduced by £1 for every £2 of income over £100,000).

He will however be entitled to the full personal allowance of £12,570 in part 2b because his salary plus the aggregate average gains come to £56,000 (see below).

The £5,000 starting rate for savings is not available because his salary is more than £17,570.

He will, however, still be entitled to a personal savings allowance of £500 in all parts of the calculations because his total income is above the higher rate threshold, but below the £125,140 additional rate threshold

Step 1 - Total tax liability

Income		Calculation	Tax
Salary	£35,140	Basic rate @ 20%	£7,028
Offshore bond	£500	Personal savings allowance @ 0%	£0
Offshore bond	£2,060	Basic rate @ 20%	£412
Offshore bond	£57,440	Higher rate @ 40%	£22,976
Onshore bond	£30,000	Higher rate @ 40%	£12,000

Tax treated as paid		£30,000 @ 20%	(£6,000)

Total tax			£36,416

Step 2 - Top slicing relief

Remember in this step, the order of income changes so that all bond gains are taxed as the highest part of income.

Step 2a - Total tax on aggregate full bond gains

Income		Calculation	Tax
Salary	£35,140	Basic rate @ 20%	N/A
Bond gain	£500	Personal savings allowance @ 0%	£0
Bond gain	£2,060	Basic rate @ 20%	£412
Bond gain	£87,440	Higher rate @ 40%	£34,976

Tax treated as paid		£90,000 @ 20%	(£18,000)

Tax on bond (2a)			£17,388

Step 2b - Tax on the aggregate slices

The slices are:

£60,000/10 = £6,000
£30,000/2 = £15,000
Aggregate slices = £21,000

Income		Calculation	Tax
Salary	£12,570	Personal allowance @ 0%	N/A
Salary	£22,570	Basic rate @ 20%	N/A
Bond gain	£500	Personal savings allowance @ 0%	£0
Bond gain	£14,630	Basic rate @ 20%	£2,926
Bond gain	£5,870	Higher rate @ 40%	£2,348

Tax treated as paid		£21,000 @20%	(£4,200)

Tax on aggregate slices			£1,074

Relieved liability (2b)		£1,074 x £90,000 / £21,000	£4,603

Step 3 - Calculate the top slicing relief

Top slice relief = (2a - 2b) = £17,388 - £4,603 = £12,785

Step 4 - Deduct the relief from the full tax liability

Income		Calculation	Tax
Salary	£0	Personal allowance @ 0%	£0
Salary	£35,140	Basic rate @ 20%	£7,028
Offshore bond	£500	Personal savings allowance @ 0%	£0
Offshore bond	£2,060	Basic rate @ 20%	£412
Offshore bond	£57,440	Higher rate @ 40%	£22,976
Onshore bond	£30,000	Higher rate @ 40%	£12,000
Tax treated as paid		£30,000 @20%	(£6,000)

Total Tax			£36,416
Top slicing relief			(£12,785)

Tax due			£23,631

The tax on the bond alone is £23,631 - £7,028 (tax on salary) = £16,603

The Budget 2020 clarified the personal allowance available for top slicing purposes. In the calculation of the relieved liability, i.e. the tax on the slices, it's the individual’s income plus the aggregate of the sliced gains which is used rather than the aggregate full gains where the gains arose after 11 March 2020.

HMRC agreed by concession that these changes apply to all gains from 2018/19 onwards. Those who submitted tax returns 2018/19 or 2019/20 on the old basis will receive a tax adjustment and refund if tax has already been paid.

The availability of the personal savings allowance when calculating the tax on the full gain and the full computation, is however, always based on total income including the full bond gains.