I've had cause for someone to assert that a trust payout should involve "top-slicing".
The internet appears to be entirely incapable of explaining "what is top-slicing?"; it just keeps reiterating the answers to "when can you use it", "what does it achieve at a super high-level" (less tax) and "it's a good thing, you should let us do it for you!".
I found a few pages that would explain the calculation process, and gave an example and .... it really doesn't seem that complex? So I want to double-check that I'm not missing anything:
I think top-slicing is:
If you receive a large amount of Taxable Income as a result of realising a "valuable thing" that's been accruing value over several years, then HMRC will agree to charge you tax approximately as though you'd actually received said income spread over all of those years, rather than as though all the income had landed in 1 year.
As a result you might (depending on your income circumstances) be able to receive more (or all) of that income at lower tax bands than you would have if you naively took it as income all in the 1 year.
The way they model this is to assume that the current year is representative of every previous year relevant to the life-time of the asset that you're realising, and tax you on that basis.
i.e. if you acquired 150k on something that accrued over 10 years, then they work out how much tax you would have paid on 15k, this year ... and then you owe 10 times that amount.
I understand that there are some extra minutiae about the exact details of it, but the high-level concept seems very simple?
Have I got it right?
