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How it works:
- We will call you back to find out more about your aims and requirements
- We will arrange a meeting with one of our team at a convenient time, either over the phone, on video, at your home or workplace, or at one of our offices
- You will be able to ask any questions you have and find out more about managing your wealth with Saltus
- Your review will be at our cost and there is no obligation to work with us afterwards
Who we work with:
- Individuals with £250,000 or more in investable assets. This includes pensions, ISAs, other tax-wrappers and cash available for investment.
The most common advice you hear is to diversify your investment portfolio but diversifying your tax wrappers effectively has the potential to have an even greater impact on your wealth.
There’s a method, known amongst financial experts, as ‘the four-box principle,’ which provides the secret to minimising the tax you pay on your retirement income.
It’s called ‘the four-box principle’ as it focuses on four core tax wrappers. In order, those tax wrappers are:
- Your pension
- An ISA
- A general investment account
- An offshore bond
What are the benefits of each tax wrapper?
All of these tax wrappers have various uses and benefits. These are applied differently depending on whether you are accumulating wealth or drawing on your assets:
- If made via salary sacrifice, pension contributions are gross of all tax (why they are incredible for building wealth) and free of capital gains tax (CGT). It is important to note that withdrawals from a pension are taxed at your marginal income rate.
- Contributions to ISAs are net of income tax and National Insurance but, once the money is in the ISA wrapper, there will be no further tax to pay!
- General investment accounts are a fully taxable environment (Income tax and CGT), but you can helpfully make use of your capital gains tax allowance to access a significant amount of money tax-free.
- Finally, an offshore bond essentially defers tax. You can access 5% of your initial investment every year with no immediate tax charge and they are free of capital gains tax. Gains that are withdrawn from a bond will be taxed as income.
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The four-box principle in practice
Whilst utilising all of the above may seem like an unnecessary amount of complexity, if you combine all four in the right way, it can have a liberating effect on your wealth.
Let’s look at the numbers using a couple with £2 million invested. The couple want to take around £85,000 a year in retirement. Using ‘the four-box principle’, believe it or not, they can access every penny of this completely free of tax:
They have been working with an adviser for some time and have structured their assets as follows:
|Tax Wrapper||Partner 1 (value)||Partner 2 (value)||Total|
As previously mentioned, (after 25% tax free cash is taken) withdrawals from a pension are taxed as income, in line with the couple’s marginal rate. Both have a personal allowance of £12,570, which means that £25,140 of income can be accessed from their pensions completely tax free.
This level of available tax-free income won’t change once their state pension commences; it simply means that £21,200.40 will be provided by the state with the balance being funded from their SIPPs.
In addition, all withdrawals from their ISAs can be taken without any tax implications. Five per cent of their initial capital (£12,500) can also be accessed from their Offshore bond each year without any immediate tax implications.
They can make also use of their combined Capital Gains Tax allowances of £12,000 to access £20,000 of funds from their GIA without paying tax. Using this allowance can be confusing to people: assuming a 4% growth rate on their £500,000, the couple’s gain in year one will be £20,000. If they wanted to ‘fully crystallise’ this £20,000 gain, they would have to sell all £520,000 of their investments. The couple can crystallise £12,000 (60%) of this £20,000 gain tax free. This means the couple could access up to £300,000 (60% of £500,000) of this pot without tax implications if they wished. However, as they want to sustain this income for the long term, they choose to only access £20,000 per annum which is easily achievable by using their allowances.
As such, their income requirement can be fulfilled tax free by drawing income across their various pots:
£85,000 a year completely tax-free… if you’re building your wealth towards retirement, it’s absolutely paramount to make use of ‘the four-box principle’ to ensure that you can access your money in the most tax-efficient way possible. And, if it all feels a little bit too complicated, be sure to take some financial advice…
All authors have considerable industry expertise and specific knowledge on any given topic. All pieces are reviewed by an additional qualified financial specialist to ensure objectivity and accuracy to the best of our ability. All reviewer’s qualifications are from leading industry bodies. Where possible we use primary sources to support our work. These can include white papers, government sources and data, original reports and interviews or articles from other industry experts. We also reference research from other reputable financial planning and investment management firms where appropriate.
Saltus Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority. Information is correct to the best of our understanding as at the date of publication. Nothing within this content is intended as, or can be relied upon, as financial advice. Capital is at risk. You may get back less than you invested. Tax rules may change and the value of tax reliefs depends on your individual circumstances.
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Financial planning can help you reach your goals in life, whether you want to determine when you can retire comfortably, bring organisation to your financial world or pass on your wealth effectively.
Pensions and retirement planning
Deciding when to retire is a challenging decision and can feel like a leap of faith. At Saltus, we gather information on all of your existing assets and then use our technology and expertise to show you exactly how to achieve the retirement you’re after.
Reducing your tax burden
How to structure your wealth and access income should be approached in a sophisticated way. A detailed financial plan may use pensions, ISAs, general investment accounts, offshore bonds and other tax wrappers to ensure you can draw your money in a tax-efficient manner.
Consolidating your wealth
Holding multiple investment accounts and pensions can mean they’re hard to keep track of and administer. We’ll help you overcome this by consolidating your accounts into a single plan so that you can understand your financial position with ease.
Protecting you and your assets
We protect our cars and houses without much thought yet you might be the most valuable asset in your family. Whatever your situation, we can provide advice to ensure you have the right level of insurance in place to keep your finances protected.
Passing on your wealth
Estate planning is more important than just having a Will. We’ll work closely with you to understand how estate planning, which has emotional as well as financial consequences, can impact your overall financial plan.
Significant life events
Significant life events can present great opportunities but also considerable challenges. Whether you are going through a business sale, divorce or are receiving a lump sum, we’ll help build a financial plan to meet your changing lifestyle.