Tax when you cash in an investment bond
When you cash in an investment bond, the gain is taxed as income in one year. Top-slicing relief spreads it over the years you held the bond, so it isn't all taxed at a higher rate.
Your answer
Enter the gain, how many full years you held the bond, and your other income.
About this calculator
For anyone cashing in the whole of a UK or offshore investment bond (a life insurance policy used to invest) in the 2026/27 tax year. Not for bonds held in a trust or by a company.
What happens to your answers
We don’t keep them. Your answers go to our server to do the sums and aren’t stored or logged. If you copy a link to your answers, they’re in the link itself, so only share it with people you trust.
How it’s worked out
The gain is what you got back, plus earlier withdrawals, less what you paid in. It's taxed as savings income on top of your other income, so any tax-free allowance, starting rate for savings or tax-free interest your other income doesn't use comes off first. Savings use the same rates across the UK, Scotland included.
A UK bond's gain counts as having had 20% tax paid already, so a basic-rate taxpayer usually has nothing more to pay. That 20% can't be paid back. An offshore bond has no tax paid, so you pay the full rate.
Top-slicing relief (a cut in the tax, not in the gain) divides the gain by the full years you held the bond, works out the tax on that one year's share with your tax-free allowance worked out again on it, and multiplies back up. If that's less, the difference comes off your tax. This is the method in HMRC's Insurance Policyholder Taxation Manual (IPTM3840).
Worked example
You'd pay about £4,230 tax on your £50,000 gain, after £4,616 of top-slicing relief.
2026/27 tax year · UK bond · cashed in in full · 5 years · other income £45,000
| Your gain (the chargeable event gain) | £50,000 |
|---|---|
| Whole gain: your tax-free interest as a higher-rate taxpayer (the savings allowance) | £500 |
| Whole gain: £4,770 taxed at 20% | £954 |
| Whole gain: £44,730 taxed at 40% | £17,892 |
| Tax on the whole gain, on top of your other income | £18,846 |
| Less the 20% tax a UK bond counts as already paid | − £10,000 |
| Tax before top-slicing relief | £8,846 |
| One year's share: the gain divided by 5 years | £10,000 |
| One year's share: your tax-free interest as a higher-rate taxpayer (the savings allowance) | £500 |
| One year's share: £4,770 taxed at 20% | £954 |
| One year's share: £4,730 taxed at 40% | £1,892 |
| Tax on one year's share, with your tax-free allowance worked out again on that share, less 20% of it | £846 |
| Times 5 years | £4,230 |
| Top-slicing relief: tax on the whole gain less 20% (£8,846), less the figure above | − £4,616 |
| Tax to pay on the gain | £4,230 |
Worked out using HMRC's published rates for the 2026/27 tax year (6 April 2026 to 5 April 2027), on a yearly basis.
Questions people ask
What's the 5% rule?
Each year you can take out up to 5% of what you paid in, for up to 20 years, without tax at the time. Unused amounts carry forward. The withdrawals still count towards the gain when you cash the bond in. Taking more than your allowance in a year makes a gain that year.
Should I cash in my bond?
We can't tell you whether to cash in, keep or switch an investment: that's for a regulated financial adviser. We can work out the tax on each choice, including cashing in over two tax years or in a year your other income is lower.
Do I need to fill in a tax return?
Yes if there's tax to pay, or if the gain plus your other savings and investment income is over £10,000, even when there's no tax. Put the gain on the additional information pages. If you don't already send a return, register for Self Assessment by 5 October after the tax year ends.
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