Rob Casselden Independent Financial Adviser

The ‘Four Box Approach’

for a tax efficient retirement

Tax efficient income planning in retirement

The Budget 19th March 2014Summary of some announcements, with a 12 week discussion period:

• Increase in ISA allowance to £15,000 (1st July 2014), with ability to hold all in cash or stocks and shares = ‘New ISA’

• Chancellor announced “the most radical change to taxation of pensions since 1921”. Ability to withdraw money from their pension funds on a more flexible basis. This will fundamentally change the way people manage their money in retirement.

• Other changes in pension death benefit, trivial commutation, drawdown limits.

• The 10% ‘starting rate’ on savings income abolished. • Also announced “free, impartial, face to face advice” for

retirees.

Using income streams together with the available tax allowances….

ISA

Pension

Bonds (OnshoreOr Offshore)

Managing your tax risk

Tax Bands 2015/16 Order of taxation1.Earned income2.Interest/Savings3.Dividends4.Life policy gainsOnshore Bond gains are always treated as the top slice of income, after earned income, savings income and dividends.Offshore Bond gains are treated as savings income, and are therefore taxed after earned income, but before dividends.

Example, Brian (aged 60) - 2015/16 tax year

• He retires and wants £65,000 p.a. income, with reduced tax liability

• He has an investment portfolio including the “4 investment boxes”

• His assets include the following:• ISAs £150,000• OEIC/Share portfolio £100,000 (Current dividend 3%pa

net)• SIPP £300,000• Offshore bond £300,000 (Originally £200,000 in

2004)Amount Tax rate Tax payable

Personal allowance £10,500 0% £ NIL

Basic rate band £31,785 20% £6,357

Higher rate band £22,715 40% £9,086

Totals £65,000 23.8% £15,443

Example, Brian (aged 60) - 2015/16 tax year Brian’s adviser suggests he takes ‘income’ as follows :

SIPP (PCLS & income) £ 18,000ISA withdrawals £ 7,000 OEICs encashed (gain of £5,000) £ 19,000Dividends (net of 10% dividend tax) £ 3,000Bond (segment encashment) £ 18,000

Total£65,000

Example, Brian (aged 60) - 2015/16 tax yearBrian’s tax calculation in 2014/15 :

Current value £300,000 (100 segments)

£18,000 required = 6 segments encashed

Segment value £3,000Less original investment £2,000Taxable amount per segment £1,000

£1,000 x 6 segments = Total of £6,000 taxable

Bond encashment calculation:

Example, Brian (aged 60) - 2015/16 tax year Brian’s adviser suggests he takes ‘income’ as follows :

Tax LiabilitySIPP (PCLS 25% & Income 75%) £ 18,000

£13,500ISA withdrawals

£ 7,000 £0OEICs encashed (gain of £5,000) £ 19,000

£0Dividends (net of 10% dividend tax) £ 3,000

£0Bond (segment encashment) £ 18,000

£6,000

Total£65,000 £19,500

Brian’s tax liability 2015/16

Order of taxation1.Earned income2.Interest/Savings3.Dividends4.Life policy gains

ISA Withdrawal= £0Dividends (10% tax paid)= £333Pension (£3,000 @20%)= £600Bond (segment encashed)= £200CGT (OEIC encashed)= £0Total Tax on £65,000= £1,133Effective tax rate of 1.74%

Planning Considerations for IHT ISAs: can’t be assigned and will be included in the estate for IHT

purpose OEICs/Shares:

• No CGT on death, but value included in the estate for IHT purposes

• Can be assigned/gifted, but this is a disposal for CGT and a gift for IHT

SIPP Lump sum death benefits: • Uncrystallised funds – pre 75, no tax• Crystallised funds - pre 75, taxed at 55% • Post 75 – taxed at 55% on all funds, including unused PCLS

Offshore Bond: can be assigned without creating a chargeable event, but treated as a transfer of value for IHT purposes

The 4 Box Investment Approach can also take into account IHT liabilities

The value of investments may fall as well as rise. Past performance is not a guide to future performance and may not be repeated.

UNDER REVIEW

Preparing For Your Retirement• Effective tax planning compliments good investment

planning.• Everyone should consider building up ISAs, Pensions

and Bonds to provide the most flexibility for retirement and legacy planning.

• Following budget announcements, Offshore bonds are more attractive due to £5,000 savings allowance with no tax.

• Different income strategies for different periods of retirement:

60-65, 65-70, 70-75, 75 onwards?Alternate the taking of pension income?Assigning assets to spouse for income?

Summary - The ‘Four Box Approach’

To benefit from the added flexibility and tax efficiency, accumulate monies in a range of

assets

Are you ready for tax efficient retirement?

Key investmentsISA

Pension

Funds

Bonds

• Cash deposits• Own company• Property• VCT• EIS

Other assets

Thank you, any questions?

The content of this presentation is intended for general news and information only. No action should be taken without checking your own personal circumstances. Newell Palmer Financial Planning are not responsible for any advice unless a personal recommendation is provided.

The value of investments may fall as well as rise. Past performance is not a guide to future performance and may not be repeated.

Furthermore, this presentation represents Newell Palmer Financial Planning’s understanding of the law and HM Revenue & Customs practices as of May 2014.

The Financial Conduct Authority does not regulate tax advice.

Newell Palmer Financial Planning Ltd, The Croft, Buntsford Gate Business Park, Stoke Heath, Bromsgrove B60 4JETelephone: 01527 889 740 ; Email: info@npfp.co.uk ; Visit www.npfp.co.ukNewell Palmer Financial Planning Ltd is an appointed representative of the Newell Palmer Group Ltd, which is authorised and regulated by the Financial Conduct Authority. Company Registration No. 3298984