When you cash in a bond or part cash in a bond it is a 'chargeable event' to income tax. Does this apply on death?
With top slicing relief, the 'slice' (the profit/gain PER year) is added to your income. If income is still within basic rate tax, tax is deemed to be paid on the whole gain. If income is above the higher rate tax threshold, then the whole of the gain is subject to higher rate tax marginal rate of 20% (as 20% is already deemed to be paid). If part of the slice, takes you above the higher rate tax threshold then in proportion part of the gain is subject to marginal rate at 20%.
The same 'top slicing' chargeable event applies on death. In short, for insurance investment bonds, the bond is deemed to be encashed the day before death and the above taxation may apply in addition to inheritance tax also then being applied.
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