TAX EFFICIENT INCOME
When thinking about drawing an income – whether that’s from a pension, an offshore bond, or from employment – front of mind for most people is the tax implications.
Once you cross the threshold of £50,270 per annum of taxable income (2025/26 figure), your tax liability jumps from the Basic Rate of 20% to the Higher Rate of 40%. That’s quite the bite!
However, there are many ways that you can draw an income strategically to make best use of the allowances and reliefs available to you.
How we plan tax-efficiently
Your wealth manager will recommend an income strategy that may include a range of carefully chosen tax wrappers. This might include any combination of:
- Offshore Bonds (also sometimes known as offshore investment bonds or international bonds)
- General Investment Portfolios (GIAs)
- Self-Invested Personal Pensions (SIPPs)
- Individual Savings Accounts (ISAs)
Each of these has their own unique benefits and can work harmoniously in tandem to provide reciprocal benefits. The combination your wealth manager recommends will be designed to work together to utilise as many of your available allowances and tax reliefs as possible.
Drawing an income whilst studying later in life
Fiona came to Tideway after she received a £1 million divorce settlement. She had recently returned to full time education and was about to begin a PhD, so she knew she would be without a formal income for at least four years. Fiona wanted to use the divorce settlement to generate an annual income of £48,000 in as tax-efficient a manner as possible.
Tideway recommended a portfolio containing an ISA, a GIA, and an offshore bond, which would provide her with her desired income without any tax liability.
Read on to learn how we achieved this.
Generating an income in retirement
We began working with John when he was in his mid 50s. He was unmarried with no children and was approaching retirement. He had accrued a pension of £1.2 million over his working life and wanted support with generating an annual income of £60,000.
Tideway used a combination of an ISA and an offshore bond, as well as his existing pension, to generate the potential for an annual income of £75,000 at only the basic rate of income tax.
Read on to find out how we structured John’s affairs to reach this position.
Pass on your wealth to your loved ones, not the tax man
Will your estate be liable for Inheritance Tax (IHT)? It’s more likely than you think, especially with pensions included in the IHT calculation as of 2027. And if your beneficiaries don’t have ready cash to pay the bill, they may even be forced to sell off their inherited assets to cover it.
Fortunately, there are many smart ways to plan ahead and mitigate the amount of IHT your beneficiaries will owe. Read on to find out more.