What is Top Slicing Relief?

The reliefs outlined in this leaflet exempt or reduce the amount of the lump sum to be taxed. Top Slicing relief relates to the tax payable and ensures that your lump sum is not taxed at a rate higher than your average rate of tax for the 3 years* prior to redundancy or retirement.

The formula for calculating this relief is:

Taxable lump sum X (tax rate applied to lump sum – average taxrate for previous 3 years)

In the case of a couple, taxed under joint assessment, where both spouses have income in any of the three years preceding the tax year to which the termination payment refers, the tax rate will be based on the income of the spouse who received the termination payment or on the combined income of both spouses depending on which rate is the most beneficial to the couple.

Top Slicing Relief may be claimed, by contacting Revenue after the end of the tax year.

Example

Jane was made redundant on 8 June 2005. The taxable amount of her lump sum is €21,000, which is taxed at her marginal rate of 42%. Her average rate of tax for the prior 3 tax years was 40%.

Top slicing relief is:

€21,000 x (42% – 40%) = €420

The tax payable by Jane will be reduced by €420.

*With effect from 1st January 2005, the average rate of tax is calculated over the previous 3 years. Lump sum payments taxable prior to 1st January 2005 are subject to an average rate of tax calculated over the previous 5 years