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Chargeable event gains for bonds and starting rate for saving: Q&A

Author Image The Technical Team
3 minutes read
Last updated on 6th Apr 2019


Questions from advisers answered about setting chargeable events gains for bonds against the starting rate for savings.

Starting rate for savings

Q: What is the £5,000 0% starting rate

A: It is a tax band which applies to savings income. Most advisers will be aware that the starting rate for savings changed with effect from 6 April 2015 - the band increased to £5,000 and the rate reduced from 10% to 0%.


Q: Does my client qualify for it?

A: If your client has non-savings income below the starting rate ‘limit’, then the 0% starting rate for savings will be available.

Q: What’s the limit?

A: The ‘limit’ with effect from 6 April 2015, is the individual’s personal allowance plus the starting rate band of £5,000. So for a client with a personal allowance of £12,500, the ‘limit’ is £17,500. If your client has non-savings income less than £17,500 then the starting rate for savings is a maximum of £5,000. Every £1 of non-savings income above the Personal Allowance reduces the starting rate for savings by £1.

Q: Why should I take non-savings income into account?

A: Non-savings income takes priority over savings income in a tax calculation and that is why the 0% starting rate is not available where ‘non-savings’ income exceeds the personal allowance plus £5,000.

Q: What should I take into account as ‘non-savings income?’

A: Basically, it is any income which is not ‘savings’ or dividends. This would include earnings, pensions and rents.

Relevance to chargeable event gain on a bond

Q: How can this help my client who has a chargeable event gain on a bond?

A: Chargeable gains on bonds are categorised as 'savings' in the tax calculations, so if a non or starting rate taxpayer qualifies for the starting rate for savings, they could potentially make a chargeable gain on an offshore bond to the tune of £17,500 (depending on their total taxable income) without having to pay any tax on the gain at all. This increases by £1,000 to £18,500 once the Personal Savings Allowance is factored in.

Offshore bond

Q: How does it work with an offshore bond?

A: Let’s look at an example:

If there is an individual who earns £5,000, they can make a chargeable gain on an offshore bond of £12,500 in the tax year 2019/20 without having to pay tax. Here is an example, which shows the position in the 2019/20 tax year:

Tax Year 2019/20


Earned income





Chargeable gain (offshore)





Total income








Tax Due


Personal Allowance





Remaining Income





Savings rate @ 0%





Remaining income





Basic rate @ 20%







Total tax due


This principle applies to clients who have no or minimal earnings, such as those who only have state pension or are in full time education. University students (those over the age of 18) with no earnings whatsoever, can make a chargeable gain of £17,500 on an offshore bond without incurring any tax.

Note also that if the Personal Savings Allowance (PSA) is included, that figure is actually £18,500. From 6 April 2016, a tax-free personal savings allowance (PSA) of £1,000 was introduced. If however any of the individual’s income is higher rate income, then the allowance will be reduced to £500. If any of the income is additional rate income, then the allowance will be nil. The PSA is more accurately described as a savings nil rate, since the amount of savings income covered by the PSA will still form part of the individual’s total income.

© Prudential 2019