Taxes Consolidation Act 1997 Schedule 3, paragraph 10

Top-slicing relief

Paragraph 10 of Schedule 3 provided for top-slicing relief, which reduced the tax payable on a chargeable termination payment by applying an average tax rate based on the recipient's income over the preceding three years.

• This relief was available up to 1 January 2014 and applied after the basic exemption and any foreign service relief had already been deducted from the termination payment.
• Top-slicing relief prevented a lump sum termination payment from being taxed entirely at the recipient's highest marginal rate by substituting a lower average rate derived from the previous three tax years.
• The relief was calculated using the formula A − (P × T ÷ I), where A was the additional tax arising from the payment, P was the chargeable amount after other Schedule 3 reliefs, T was the aggregate tax paid over the prior three years, and I was the aggregate taxable income for those years.
• The effect was that tax on the chargeable sum was charged at the recipient's average rate of tax over the three preceding years rather than at the marginal rate that would otherwise have applied.