Clive asked – why aren’t we being taxed !

Clive asked – why aren’t we being taxed !  I received a worried call from a retired client recently, they had, had their neighbours in who were complaining about the tax they pay every month on both their pension and their savings . . .

Don’t you remember Clive, many years ago when we first met I suggested a Pension Top-Up scheme to you, you agreed at the time that it was a good idea.

I said you need to look ahead to the future as your pension income will be quite high. So, you and your wife agreed to set up an Offshore Investment Bond in her name. If you remember I said do not take any regular withdrawals. “Yes, well we didn’t need the income at that time, we were both working.”

Quite well the 5% limit you can take annually, is also allowed to accumulate, so currently and for some years to come, you are right there is no immediate tax to pay, certainly not income tax because these are regarded as capital withdrawals.

“So, it’s not a fiddle then!”

Absolutely not, dear boy!

“That explains the £1,000 monthly we are not paying any immediate tax on”.

“Well, will you please explain why we are not being taxed on our other withdrawals of £750 a month each?”.

Yes, Ok. Most people invest their capital and take an income from it, so naturally, that means they will be taxed on whatever they take, less any small tax allowances.

We prefer to invest on a total return basis, that means investing in a wide range of collective investments, every so often we take profits. That means that any capital gain goes back into the pot.

Instead of worrying about your monthly payments being affected by any fall in interest rates, you take a fixed capital withdrawal every month.

“Yes, but what if the world turns on its head and the investment market collapses?”

Well you have been clients for years and we have had quite a few ups and downs, haven’t we?

“I remember, and this system of your worked so well I was able to stop work years earlier than I thought”.

Well, you had the faith and so it’s right you should be rewarded.

“So, we are only being taxed on my pension income then?”

Part of it anyway, as you do have a personal allowance.

“So, we can keep taking our eight holidays a year then?”

Well yes, if you have the time to spare, as the money does not seem to be the problem you thought it might be all those years ago.

“Let’s drink to that!”

Why not, having sufficient cash flow to fund your rather extravagant lifestyle is what life is all about isn’t.

” Clearly we are very happy to be in receipt of a good income but how is our portfolio doing overall?”

I imagine you would be happy to know that, despite taking withdrawals you would be, you are £50,000 ahead.

“Very happy!”

That’s a shame because your profits are a lot higher than that!

“Even after all the withdrawals?”

Yes, even after the withdrawals.


If you have concerns about your income in retirement then contact us!

Ray Best is a resilient Financial Planner with a unique approach to investment planning, his work ethic has propelled him from humble beginnings to be voted as a top UK Financial Planner by Vouched For (as published in the Sunday Times). These days he works with families with large investment portfolios or big inheritance tax liabilities, the first step, is to book a Discovery Meeting HERE.

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