The ‘Four Box Approach’
for a tax efficient retirement
Rob Casselden
Independent Financial Adviser
Tax efficient income planning in
retirement
The Budget
th
19
March 2014
Summary 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….
Pension
ISA
Bonds
(Onshore
Or Offshore)
Managing your tax risk
Tax Bands 2015/16
Order of taxation
1. Earned income
2. Interest/Savings
3. Dividends
4.Life policy gains
Onshore 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
OEIC/Share portfolio
SIPP
Offshore bond
£150,000
£100,000 (Current dividend 3%pa net)
£300,000
£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)
ISA withdrawals
OEICs encashed (gain of £5,000)
Dividends (net of 10% dividend tax)
Bond (segment encashment)
£ 18,000
£ 7,000
£ 19,000
£ 3,000
£ 18,000
Total
£65,000
Example, Brian (aged 60) - 2015/16 tax
year
Brian’s tax calculation in 2014/15 :
Bond encashment calculation:
Current value £300,000 (100 segments)
£18,000 required = 6 segments encashed
Segment value
£3,000
Less original investment
£2,000
Taxable amount per segment £1,000
£1,000 x 6 segments = Total of £6,000 taxable
Example, Brian (aged 60) - 2015/16 tax
year
Brian’s adviser suggests he takes ‘income’ as follows :
Tax Liability
SIPP (PCLS 25% & Income 75%)
ISA withdrawals
OEICs encashed (gain of £5,000)
Dividends (net of 10% dividend tax)
Bond (segment encashment)
£ 18,000
£ 7,000
£ 19,000
£ 3,000
£ 18,000
£13,500
£0
£0
£0
£6,000
Total
£65,000
£19,500
Brian’s tax liability 2015/16
Order of taxation
1. Earned income
2. Interest/Savings
3. Dividends
4.Life policy gains
ISA Withdrawal
= £0
Dividends (10% tax paid) = £333
Pension (£3,000 @20%) = £600
Bond (segment encashed) = £200
CGT (OEIC encashed)
= £0
Total Tax on £65,000
= £1,133
Effective 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.
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
Other assets
Key investments
Bonds
Funds
Pension
ISA
•
•
•
•
•
Cash deposits
Own company
Property
VCT
EIS
Are you ready for tax efficient retirement?
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 4JE
Telephone: 01527 889 740 ; Email: info@npfp.co.uk ; Visit www.npfp.co.uk
Newell 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