The changes summarised below will impact Transact onshore bond reserve charges.
From 6 April 2027 the savings rates of income tax increase by two percentage points, to 22%, 42% and 47%. Chargeable event gains are taxed as savings income, so the life company rate applied to policyholder funds — and the non-reclaimable tax credit attaching to an onshore bond gain — also increase from 20% to 22%. For IntegraLife UK Limited (ILUK), whose financial year runs from 1 October to 30 September, unrealised gains for the year ending 30 September 2027 will be charged at a blended rate of 21%. From 1 October 2027 the rate increases to 22%. Because gains on collective investments are spread over seven years for life company tax purposes, part of the gain arising in each financial year from 30 September 2021 to 30 September 2026 will now be taxed at the higher rate. The reserve held for those years therefore needs to be topped up, and that additional charge will be collected in instalments between 30 September 2026 and 30 September 2030.
What is changing?
In the Autumn Budget 2025 the Chancellor announced that income tax rates on savings and property would rise by two percentage points from 6 April 2027, along with an increase to the rates applicable to dividends. The increased rate of tax on dividends took effect from 6 April 2026. The increase to savings and property income take effect from 6 April 2027, taking the savings basic rate to 22%, the savings higher rate to 42% and the savings additional rate to 47%. The new savings rates apply UK-wide, including in Scotland.
The main rates of income tax on earned income are unchanged. The significance for onshore bonds is that chargeable event gains are treated as savings income, so a basic rate taxpayer's liability on a gain rises from 20% to 22%.
Had nothing else changed, life companies would have continued to deduct tax at 20% within the fund and issue a 20% tax credit, leaving basic rate taxpayers with a 2% shortfall to report and pay. Instead, the rate of tax applied to policyholder funds has been aligned with the savings basic rate, and the non-reclaimable tax credit shown on the chargeable event certificate also increases to 22%. As the increase in the basic savings rate is matched by an equivalent increase in the tax treated as paid on the gain, the additional tax liability on chargeable gains for higher rate and additional rate taxpayers remains unchanged as seen below:
Client's marginal position | Further tax on an onshore bond gain |
|---|---|
Non-taxpayer / basic rate | Nil |
Higher rate | 20% |
Additional rate | 25% |
Top slicing relief continues to be available, and the calculation of "tax treated as paid" has been updated to reflect the new rates.
Why the reserve charge must increase
ILUK, like every onshore bond provider, is liable to UK tax on the income and gains of the investments linked to the bond. That liability is met by a non-reclaimable charge deducted from the bond, and it is assessed on:
unrealised gains on collective investments at each company financial year end;
realised gains since the previous financial year end; and
interest and property income received within the bond.
Now that ILUK’s rate of tax on investment income and gains is increasing, it is necessary to increase the amount deducted from onshore bond policies.
Future years. ILUK's financial year runs from 1 October to 30 September, so the year in which the rate changes straddle the 6 April 2027 start date. Unrealised gains for the financial year ending 30 September 2027 will therefore be reserved at a blended rate of approximately 21.6%. For gains arising from 1 October 2027 onwards, the reserve rate will be 22%.
Earlier years. Gains arising on deemed disposals of unit trusts and OEICs are not taxed in full in the year they arise; they are spread over seven years. That means a proportion of the gain arising in each financial year from the year ended 30 September 2021 to the year ended 30 September 2026 has not yet been brought into charge, and the outstanding instalments will now fall due at 22% (although the effective rate is lower because only a proportion of the gain is charged). The reserve held for those years is consequently understated and must be topped up.
The additional charge and when it will be collected
The table below shows the additional reserve charge applicable to gains arising in each financial year, together with how that additional charge will be spread and the financial year end at which each instalment will be collected.
The further back the year, the smaller the proportion still to be taxed — which is why the additional charge is smallest for the year ended 30 September 2021 and largest for the year ended 30 September 2026.
For the years ended 30 September 2022 to 30 September 2025, the top-up is spread over a number of years rather than taken in one deduction.
Gain arising | Additional charge | 30/09/2026 | 30/09/2027 | 30/09/2028 | 30/09/2029 | 30/09/2030 |
|---|---|---|---|---|---|---|
30/09/21 | 0.139% | 0.139% | – | – | – | – |
30/09/22 | 0.426% | 0.213% | 0.213% | – | – | – |
30/09/23 | 0.711% | 0.235% | 0.235% | 0.235% | – | – |
30/09/24 | 0.997% | 0.249% | 0.249% | 0.249% | 0.249% | – |
30/09/25 | 1.283% | 0.257% | 0.257% | 0.257% | 0.257% | 0.257% |
30/09/26 | 1.568% | 1.568% | – | – | – | – |
Each percentage is applied only to the increase in unrealised gain arising in the relevant financial year in question, not to the total unrealised gain on the investment. The additional charge only applies where a reserved charge was originally established for that year’s gain.. Where an investment was standing at a loss, or was purchased more recently, no reserve exists and therefore no uplift is required.
What clients will see
For unrealised gains that arose prior to 1 October 2026, clients will see an increase to the reserve charges in line with the rates above. This will be deducted along with the quarterly reserve charges for 30 September 2026.
For unrealised gains arising from 1 October 2026, the increase rate will first be applied with effect from 31 December 2026. The additional changes in relation to earlier financial years will be deducted as per the table above.
For interest distributions paid after 30 September 2026, an increase in the amount of tax deducted from 20% to 21%. From 1 October 2027, this will increase from 21% to 22%.
Deductions are taken from the bond's cash balance.
There is no change to the 5% tax deferred withdrawal facility, to the chargeable event rules, and no client reporting obligation arises from the reserve charge itself.
If you have a question not covered above, or would like to discuss a specific client scenario, please contact Transact Technical Support: Technical_Direct@integrafin.co.uk or call 020 7608 5330.
All information is based on our understanding and interpretation of applicable law and regulation which is subject to change. Tax treatment depends on individual client circumstances and may change in the future.