Tax ‘Wrappers’ and Successful Planning for 2021



A recent post from Beesure’s Alex Palmer gave an important insight into tax and allowances as we enter the new tax year for 2021/2022.

While certain allowances such as an individuals ISA subscription and annual pension allowance present opportunities to accumulate funds within the tax year, it is also important to consider how we can utilise our tax allowances through decumulation of funds as we seek income from our investments such as in retirement.

Today’s insight takes a brief look at the various tax wrappers available to fully utilise our personal savings allowance, Dividend allowance, Capital Gains Tax allowance and income tax allowance to generate tax free income from your investments.

A ‘wrapper’ is simply an account that can be ‘wrapped’ around your investments to give them a level of protection from tax.


Individual Savings Account (ISA)

ISAs are accounts in which the income and gains generated are not subject to additional tax and do not have to be declared on your tax return. ISAs can therefore be a source for tax free income, capital, or both.

Personal Pensions

Gains and income generated within the pension are not subject to tax. On withdrawal 25% of funds are tax free as a pension commencement lump sum (PCLS) and 75% are subject to income tax. Therefore pension income will utilise an individuals income tax allowance.

Investment Bonds

Investment bonds fall into two categories, onshore and offshore. UK Investment bonds are treated as having paid income tax at the basic rate on the amount of your gain. This notional tax is not repayable in any circumstances. You will have no liability to capital gains tax or basic rate income tax on bond gains. Offshore investment bonds are similar to UK however you will pay income tax on any gain at your highest marginal rate of tax as you are not treated as having paid basic rate tax on any gain.

Tax deferred

You can withdraw up to 5% per year of the amount invested into an investment bond without paying any immediate tax. This allowance is cumulative and so any unused proportion of the 5% limit can be carried forward to subsequent tax years. If you decide to take more than the accumulated 5% tax-deferred allowance you will create a gain to the amount over the allowance which could be subject to income tax depending on your level of income and whether the gain is from an onshore or offshore bond.

Units Trusts and Open-Ended Investment Companies (OEICs)

Unit trusts and OEICs are forms of collective investment which allow individuals to participate in a large portfolio of assets by pooling their money with other investors. As capital growth is taxed under Capital Gains Tax (CGT), each individual can offset their annual CGT exemption which can make Unit Trusts and OEICs tax-efficient for investors. These types of investment products will also give access to interest and dividend distributions which can utilise savings and dividend allowances.



How can these ‘Wrappers’ add value?

To demonstrate this we will look at a simple example:

An individual starting retirement has a personal pension pot of £250,000, ISA funds of £100,000 and is about to receive their state pension of £9,000 per annum.

Their net target income is £20,000 for the year.

One option would be to leave the ISA and access the pension for the income needed. An uncrystallised funds pension lump sum withdrawal of £12,105 would generate £11,003.25 net income which on top of the state pension meets the £20,000 net target. This option does however produce a income tax liability of £1,101.75.

An alternative method would be to tailor the level of income taken from the pension to remain within the personal income allowance and take additional funds tax free from the ISA to generate the £20,000 target. This alternative method using multiple wrappers to produce the income needed could result in a tax saving of £1,101.75.

Designating savings into multiple tax wrappers my not be suitable for everyone, however it can give more scope for effective tax planning. Having assets across various wrappers give a level of diversification to tax risks with more flexibility to adapt to changing circumstances.

Due to possible savings in tax, effective multi wrapper planning can result in greater sustainability of funds through retirement as well as a higher transfer of funds through generations.



Should you wish to speak to a regulated financial adviser to help utilise your tax allowances, visit or for more information on pensions & retirement planning click here.


Written by Alex O’Neil DipPFS, IFA at Beesure Financial Planning Ltd

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