Time apportionment relief on offshore bonds

Time apportionment relief reduces a chargeable event gain on a life policy or investment bond by the share of the ownership period that the person taxed spent outside the UK for tax purposes. The gain is multiplied by foreign days over total days in the material interest period, and that fraction is deducted, under section 528 of the Income Tax (Trading and Other Income) Act 2005. It has always applied to offshore bonds and, since 6 April 2013, also applies to UK bonds issued, varied or assigned from that date. The insurer’s certificate shows the full gain, so the policyholder must work out the reduction.

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What problem does the relief solve?

A bond gain is taxed in one go when a chargeable event happens, even though the growth built up over many years. IPTM3734 confirms that an individual is not taxed on a gain arising in a tax year when they are not UK resident, unless they are only temporarily non resident. Without relief, though, someone who held a bond abroad for years and cashed it in after returning would be taxed on growth earned while they were outside the UK tax net. Time apportionment relief, often called TAR, removes that part of the gain.

In practice the relief is relevant to anyone who has lived abroad while owning a bond. A UK resident who has never been non resident gets nothing from it.

Which policies does it cover?

Under the rules before 6 April 2013, set out at IPTM3730, the reduction applied only to foreign policies, broadly policies issued by insurers that are not UK resident (IPTM3330). From 6 April 2013, IPTM3731 explains that the relief was extended to policies issued by UK insurers and was linked to the residence history of the person actually liable on the gain. The extended rules cover:

policies issued on or after 6 April 2013 and owned by individuals;
older policies varied on or after that date so as to increase the benefits, including by exercising an option;
older policies assigned to the individual on or after that date, including assignments into or out of a trust;
older policies whose rights become held as security for the individual’s debt.

Continuing regular premiums, and automatic premium increases built into the policy, do not count as variations. The residence test changes apply to every gain arising on or after 6 April 2013, whatever the policy date.

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How is the reduction worked out?

Section 528 reduces the gain by A divided by B, where:

A is the number of foreign days in the material interest period;
B is the total number of days in the material interest period.

Foreign days are days in a tax year for which the individual is not UK resident, plus days in the overseas part of a split year (section 528(1A)). Residence is decided under the statutory residence test, and the overseas part of a year comes from split year treatment.

The material interest period is the part of the policy period in which the individual beneficially owned the rights, had created a non charitable trust holding them, or had the rights held as security for their debt (section 528(5) and IPTM3732). It is therefore the individual’s own ownership period, not necessarily the full life of the policy. Both the first and last days are counted as whole days (IPTM3734). Where a policy replaced an earlier one under the substitution rules, the policy period runs from the issue of the earlier policy (section 528(11)).

A worked example

HMRC gives this example at IPTM3734:

Step	Detail
Policy taken out	1 May 2013
Moved to Germany	6 April 2017, non resident for 2017 to 2018
Full surrender	5 April 2018, gain of £15,000
Returned to the UK	6 April 2018
Days in the period	1,801, of which 365 are foreign days
Reduction	£15,000 x 365 / 1,801 = £3,040
Taxable gain	£11,960, reported for 2018 to 2019

Because Maureen was away for five years or less after being UK resident in at least four of the previous seven tax years, she was temporarily non resident. The gain made while abroad was therefore taxed in the year she came back, but the reduction for her foreign days still applied.

What happens to top slicing relief?

Where time apportionment relief is claimed, the number of years used for top slicing relief must also be cut, so that the relief is not given twice. For gains from 6 April 2013, IPTM3736 says the foreign days in the material interest period are divided by 365, rounded down, and that number is deducted from the full years used in the calculation. HS320 tells the policyholder to reduce the number of years shown on the chargeable event certificate by the whole years spent non resident. IPTM3830 adds that where time apportionment relief applies, the count of years starts from the commencement of the policy, reduced by the time spent abroad.

The reliefs are applied in a fixed order (IPTM3736): first any restriction for a restricted relief qualifying policy, then time apportionment relief, then top slicing relief. HS320 explains that the time apportioned reduction is deducted from the gain entered on the return, whereas top slicing relief is given in terms of tax and the gain is not reduced for it.

How does it work for assigned, joint or trust policies?

Assignments between spouses or civil partners living together. Section 528(6) to (8) adds the transferor’s ownership period, and their foreign days, to the recipient’s material interest period (IPTM3733).
Other gifts. Because the material interest period follows the individual’s own ownership, a recipient other than a spouse or civil partner counts only their own period. See assigning a bond to a spouse or child.
Joint owners. The reduction is worked out separately on each owner’s share of the gain, using each person’s own residence history (IPTM3733).
Trusts. Where the settlor is taxable, it is the settlor’s residence history that counts. Section 528A gives a reduction to personal representatives by reference to the deceased’s non residence, and to trustees in some cases after the settlor has died (IPTM3735).

How is the gain reported?

HS320 says the reduction will not be shown on the certificate, so the individual deducts it and enters the reduced gain. Gains on foreign policies go in the foreign section of the tax return, under other overseas income and gains, while gains on UK policies go under other UK income (IPTM3210). Gains on offshore bonds also carry no basic rate tax treated as paid, so the reduction often makes a noticeable difference to the tax bill (IPTM3720).

What mistakes are common?

Applying the post 2013 rules to an older UK policy that has not been varied, assigned or charged since 5 April 2013. Only foreign policies get relief under the earlier rules.
Using the full life of the policy as the period when the bond was acquired by gift from someone other than a spouse or civil partner.
Counting calendar years abroad instead of tax years of non residence and overseas parts of split years.
Forgetting to reduce the years used for top slicing relief.
Assuming a gain made while abroad is outside UK tax when the person returns within five years.

For the basics of how bond gains arise, see chargeable event gains on investment bonds.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.