Offshore bond tax calculator: the gain on encashment and top slicing relief
Work out the chargeable event gain when an investment bond is cashed in, or when withdrawals go past the 5% allowance, then the income tax on it and how much top slicing relief takes off. It follows HMRC's method for 2026/27 and 2027/28, including the 2020 change to the personal allowance, and shows every step of the working.
By Eldar Edmond Grady, CEO, PPLI.com · Tax method checked against HMRC's worked examples on
Which calculation do you need?
Encashment can mean cashing in the whole bond or only taking some money out, and the two are taxed in different ways. Find the line that matches what you are doing.
- Cashing in the whole bond, or whole segments of it
- Choose Cashed in in the calculator below. The gain is what you receive, plus any earlier withdrawals, less what you paid in and any gains already taxed. For segments, enter the figures for those segments only. A bond that ends on the death of the last life assured is worked out the same way, using the surrender value just before death.
- Taking money out within the 5% allowance
- There is nothing to work out yet. No tax is due when you take it, and any allowance you have not used carries forward. The withdrawals are added back when the bond is finally cashed in. How the 5% allowance works.
- Taking out more than the 5% allowance
- Choose Withdrawal over 5%. The amount above your running allowance is a gain at the end of that policy year, whatever the bond is actually worth.
- The insurer has already sent a chargeable event certificate
- Choose I have the certificate and enter the gain and the number of years it shows. See how to read the certificate and how to report the gain to HMRC.
- Deciding whether a bond is worth having at all
- That is a different question, and this calculator does not answer it. The tax drag calculator and the charges break-even calculator compare the same portfolio held directly and inside a bond. Neither works out the tax on cashing one in.
The calculator works in two steps: first the chargeable event gain, then the income tax on that gain after top slicing relief. You choose the tax year the gain falls in, 2026/27 or 2027/28 (when the savings rates rise to 22%, 42% and 47%), and whether the bond is offshore or UK. It assumes one gain in the year and no Gift Aid or pension contributions. Everything else it assumes is listed under how the calculator works.
What top slicing relief does
A bond can run for twenty years and pay out in one. All of that growth lands in a single tax year, and on its own it would push most people into a higher band than they usually pay. Top slicing relief is the correction for that.
The gain is divided by the number of complete years the bond has run. That one year's share is called the slice. You work out what tax the slice would cost on top of your other income, multiply the answer by the number of years, and compare it with the tax on the whole gain taxed at once. If the whole-gain figure is higher, the difference is the relief. For someone whose income is normally in the basic rate band, the relief can be most of the tax. For an additional rate taxpayer it is often nothing, because the slice is taxed at the same additional rate as the whole gain: 45% in 2026/27, 47% in 2027/28. The calculator uses the rates of the tax year you select.
One thing the relief does not do is give back the personal allowance. If the gain takes your income above £100,000, the allowance is reduced or lost on your real income for the year. The relief calculation pretends only the slice was received, which makes the relief larger, but the allowance itself stays lost.
A £1,200,000 gain on an offshore bond, step by step
A bond bought for £2,000,000 twelve years ago is cashed in for £3,200,000 in 2026/27 by someone whose other income is £60,000 a year. The same figures are the calculator's starting position, so you can follow them on screen.
Received 3,200,000 less premiums 2,000,000 gain 1,200,000
Complete years since the bond started 12
Slice: 1,200,000 / 12 100,000Income with the gain 1,260,000, so the personal allowance is nil
Other income 60,000: 37,700 at 20% and 22,300 at 40% 16,460
Gain 1,200,000: 65,140 at 40% and 1,134,860 at 45% 536,743
Less 20% of the gain, treated as paid for this step only 240,000
Liability on the gain before relief (s.535) 296,743Income with only the slice is 160,000, so the allowance is still nil
Slice 100,000: 65,140 at 40% and 34,860 at 45% 41,743
Less 20% of the slice 20,000
21,743 × 12 years (s.536) 260,916Relief: 296,743 less 260,916 35,827
Tax on all income before relief 553,203
Less relief 35,827
Income tax for the year 517,376
Tax the 60,000 alone would have cost 11,432
Extra tax caused by the gain 505,944 (42.2% of the gain)The 20% deducted in steps 2 and 3 is the credit a UK bond carries. An offshore bond has no credit, but the statute keeps the deduction for the purpose of working out the relief, and because it appears on both sides it cancels out. It does not reduce the final bill. Had this been a UK bond, the same relief would apply and the credit of £240,000 would then come off the tax due, leaving extra tax of £265,944 instead of £505,944.
Where the relief is worth having, and where it is not
A gain that costs the personal allowance
Someone earning £50,000 cashes in an offshore bond after five years for a gain of £150,000. Income for the year is £200,000, so the personal allowance goes entirely. In the relief calculation, income is taken as £80,000, the allowance of £12,570 comes back, £500 of the slice falls within the savings allowance and the rest of the £30,000 is taxed at 40%. The relief is £4,743 and the extra tax is £63,974. These are the facts of HMRC's own Example 3 in its manual, moved to 2026/27 rates and an offshore bond. On a UK bond at today's rates the tax left on the gain after relief and credit is £29,000, the same figure HMRC reaches, and the calculator agrees.
A withdrawal that goes past the 5% allowance
A £1,000,000 bond is eight policy years old. Withdrawals of £300,000 have been taken in earlier years and £200,000 is taken this year. The cumulative allowance is 8 × 5% × £1,000,000 = £400,000, so £100,000 is a gain at the end of the policy year, whatever the bond is actually worth. For someone with £60,000 of other income the relief is £3,343 and the extra tax £43,428. Had the bond been surrendered in whole segments instead, the gain would have been measured on the real growth of those segments.
The same £1,200,000 gain a year later
In 2027/28 the savings rates rise by two points. The gain is taxed at 42% and 47% rather than 40% and 45%, so the tax before relief rises to £560,743 and the extra tax to £529,944. The relief itself stays at £35,827, because the two extra points fall on every pound of the gain whether it is sliced or not. Anyone with a choice over the tax year of an encashment has £24,000 riding on it at this size, two pence in the pound.
How the calculator works
The gain
On a full surrender, the gain is the amount received plus every earlier withdrawal, less the premiums and any gains already taxed (ITTOIA 2005 s.491). On a death the amount received is the surrender value immediately before death. For a withdrawal over the 5% allowance the calculator uses the cumulative test in s.507: total withdrawals to date, less 5% of the premium for each policy year up to the end of the one in which the withdrawal is made, to a maximum of twenty years, less earlier excess gains. That gain arises at the end of the policy year, not on the day of the withdrawal, which decides the tax year it falls in.
Time apportionment
If you were not UK resident for part of the time you owned the bond, the gain is reduced in the same proportion (s.528), and each complete year abroad comes off the number of years used for the slice. The calculator works in whole years; HMRC counts days, so for a precise figure use the dates on the chargeable event certificate.
Where the gain sits in your income
The gain is savings income. On an offshore bond it is taxed after your earnings and interest and before dividends; on a UK bond it is the very top slice, above dividends (ITA 2007 s.16 and ITTOIA s.465A). Inside the relief calculation every gain is treated as the top slice, whichever kind of bond it is (s.535(4)). The starting rate for savings, the personal savings allowance and the dividend allowance are applied as nil-rate bands, and the allowance you are entitled to is set by your income including the whole gain.
The relief
Following Finance Act 2020, the personal allowance in the relief calculation is the one you would have if the gain were only the slice, and allowances are set against other income before the gain. HMRC applies the same approach to the savings allowance and the starting rate for gains from 2021/22 (IPTM3820). The relief is the liability on the whole gain less the slice tax times the number of years, if positive (ss.535 and 536). The credit is deducted on both sides at 20%, or 22% from 6 April 2027.
What it leaves out
One gain in the year only; several gains are pooled under s.537. No Scottish rates, which change the tax on earnings but not on the gain. No Gift Aid or pension contributions, which extend the basic rate band. No trustees. While the settlor is alive and UK resident the gain is taxed on the settlor and the calculator applies; once it falls on UK trustees it is taxed at the trust rate with no relief: 45% in 2026/27, or 25% on a UK bond after the 20% credit. No personal portfolio bond gains, which get no relief either. Where the tax on the slice is less than the credit on the slice, the calculator treats the slice liability as nil, as HMRC's Self Assessment working sheet does, so a gain that stays within the basic rate band gets no relief.
What happens next
Reporting the gain
An offshore bond gain goes on the foreign pages of your Self Assessment return, SA106, with the number of complete years beside it. A UK bond gain goes on the additional information pages, SA101. If you are not in Self Assessment and the gain plus your other savings and investment income comes to more than £10,000, you need to register. The tax is due on 31 January after the end of the tax year.
Two certificates in one year
Segmented bonds and a couple's separate bonds often produce two gains in the same tax year. They are pooled under s.537: each gain is divided by its own number of years, the slices are added together and the relief is worked out on the total. That is not the same as running the calculator twice, so for two or more gains treat the result as a guide only.
What else the full gain touches
The whole gain counts in your adjusted net income for the year, even though the relief reduces the tax on it. That decides the personal allowance taper, the high income child benefit charge, the tapered pension annual allowance and student loan repayments. A gross pension contribution or Gift Aid payment in the same year extends your basic rate band and can bring part of the gain back to 20%, though Gift Aid is ignored inside the relief calculation itself (s.535(7)).
Top slicing relief questions
How do you calculate top slicing relief?
Work out the tax on the whole gain as the top part of your income. Divide the gain by the number of complete years the bond has run to get one slice, work out the tax on that slice as the top of your income, and multiply it back up by the same number of years. The relief is the difference between the two figures, if the first is larger.
Do I have to claim top slicing relief?
You give the gain and the number of complete years on your Self Assessment return, on the foreign pages (SA106) for an offshore bond and the additional information pages (SA101) for a UK bond, and the relief is worked out in HMRC's calculation of your tax. If you prepare the return yourself, check that the number of years is right, because it decides the size of the slice.
Does top slicing relief give back my personal allowance?
No. If the whole gain takes your income above £100,000, the personal allowance you lose stays lost. Since the 2020 change, the slice calculation uses the allowance you would have had with only the slice in your income, which makes the relief larger, but the main calculation still uses your real income for the year.
How many years count for top slicing on an offshore bond?
When the whole bond is cashed in, the number of complete years since it started. For a gain on a withdrawal over 5%, on a bond issued after 5 April 2013 and held by someone who was always UK resident, the number of complete years since the last such gain, or since the start if there was none. Each complete year you were not UK resident while you owned it comes off the number.
Can trustees claim top slicing relief?
No. The relief is for individuals. While the settlor is alive and UK resident the gain is taxed on the settlor, who does get it. A gain taxed on UK trustees is charged at the trust rate, 45% in 2026/27, with no top slicing, which is why trustees of a bond usually assign segments to a beneficiary before they are cashed in.
Is an offshore bond gain taxed as income or as a capital gain?
As income. It is savings income, taxed at 20%, 40% or 45% in 2026/27. Capital gains tax does not apply, so the £3,000 annual exempt amount and any capital losses cannot be set against it.
Do the 2027 tax increases affect bond gains?
Yes. Finance Act 2026 raises the savings rates to 22%, 42% and 47% from 6 April 2027, and bond gains are savings income. The credit on a UK bond rises to 22% at the same time. These rates are law, but the Budget on 28 October 2026 could still change them, so the calculator shows 2027/28 as a separate option.
Calculators and related reading
Top slicing relief explainedThe rules behind the calculator, with two full examplesRead →The 5% withdrawal allowanceTax deferred, not tax free, and why segments matterRead →Time apportionment reliefMoving to, returning to or leaving the UK with a bondRead →Offshore bond break-evenThe year a bond pays for its charges, if it doesOpen →How offshore bonds are taxedThe whole picture for a UK residentRead →PPLI.com is not authorised by the Financial Conduct Authority and does not give personal advice. The calculator is an estimate of how UK income tax applies to a chargeable event gain and is not a substitute for a tax return or for advice on your own position. Policies issued by insurers outside the UK are not protected by the Financial Services Compensation Scheme (unless written through a UK branch).
The authorities this page relies on
ITTOIA 2005 ss.491 and 507
The gain on a full surrender, and the cumulative test for a gain on a withdrawal over the 5% allowance. legislation.gov.uk, s.491 · s.507
ITTOIA 2005 ss.535 and 536
Top slicing relief: the liability on the gain, the annual equivalent and the relieved liability, with the personal allowance rule inserted by Finance Act 2020 s.37. legislation.gov.uk, s.535 · s.536
HMRC IPTM3820 to IPTM3850
HMRC's statement of the method, its treatment of the savings allowance and starting rate from 2021/22, and the worked examples the calculator was tested against. gov.uk, IPTM3820 · IPTM3850
ITTOIA 2005 ss.528 to 531
Time apportionment for periods of non-residence, the basic rate credit on UK policies, and s.531(1), which withdraws it from foreign policies except for the purpose of calculating top slicing relief. legislation.gov.uk, s.528 · s.530
Finance Act 2026
Savings rates of 22, 42 and 47% from 6 April 2027 (s.5), separate property income rates (ss.6 and 7) and the credit at the savings basic rate (Sch 1). legislation.gov.uk, FA 2026 s.5
HMRC helpsheets HS320 and HS321
Gains on UK and on foreign life insurance policies, including where to report them. gov.uk, HS321
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