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Modeling 5% Tax-Deferred Withdrawals from an Investment Bond

This article explains how to model 5% tax-deferred withdrawals from an investment bond in AdviserGo. These withdrawals are modeled using Planned Withdrawals and, where appropriate, Withdrawal Limits.

Understanding the Bond Setup

In this example, the investment bond is entered with:

Original purchase value: £500,000
5% annual tax-deferred allowance: £25,000 per year
Remaining principal (cost basis): £450,000

This setup tells the software that:

The client has already used £50,000 of the tax-deferred allowance (two years at 5%)
There are 18 remaining years of 5% tax-deferred withdrawals available

If no additional instructions are added, AdviserGo will:

Take “as needed” withdrawals from the bond to fund expenses
These withdrawals may exceed the 5% tax-deferred allowance

To control this behavior, you must use Withdrawal Limits and/or Planned Withdrawals.

Option 1: Allow Ad Hoc Withdrawals (But Cap Them at 5%)

Use this option if:

The client is not currently taking regular withdrawals
You want the software to take withdrawals only when needed
You want to ensure withdrawals do not exceed the tax-deferred allowance

Steps

Open the bond from the Dashboard
Set the Withdrawal Limit to Max without penalty

This tells the software:

It may take ad hoc withdrawals
Withdrawals cannot exceed the remaining 5% tax-deferred allowance

Option 2: Model Regular 5% Withdrawals Using Planned Withdrawals

Use this option if:

The client is already taking their 5% allowance, or
The client plans to start taking regular 5% withdrawals

Important Withdrawal Limit Settings

Set the bond’s Withdrawal Limit to:
- Scheduled only → if you want only the planned withdrawals to occur
- As needed → if you want the software to top up above the planned amount if required

In this example, we will use Scheduled only.

Step-by-Step: Add a Planned 5% Withdrawal

1) Add a Planned Withdrawal

Click the Plus (+) button
Select Planned Withdrawals
Click Add Withdrawal
Give the withdrawal a clear name (e.g., Bond 5% Tax-Deferred Withdrawal)

2) Set the Withdrawal Type

Choose Amount
Do not use Percentage
- Percentage applies to the current balance, not the original premium

Enter:

£25,000
Set the withdrawal as Recurring

3) Select the Bond

Confirm the correct investment bond is selected

4) Set the Timing

Start: Plan start
End: When the tax-deferred allowance is exhausted

Since:

2 years have already been used
There are 18 remaining years

Create an end event at the appropriate year and set it as the End Event.

Click Done to save.

Reviewing the Results

Cash Flow View

Planned withdrawals appear in yellow
Withdrawals stop automatically at the end event
No additional withdrawals occur because the withdrawal limit is set to Scheduled only

Year View → Investments

Open Year View
Go to Investments
Click the investment bond

You will see:

£25,000 withdrawn each year as principal
The remaining principal reducing year by year
AdviserGo tracking the remaining tax-deferred allowance automatically

Alternative: Use “Max Without Penalty” in Planned Withdrawals

Instead of entering a fixed amount:

You may choose Max without penalty as the withdrawal type

How This Works

AdviserGo automatically calculates the 5% allowance
No manual calculation is required

Important Behavior

The first year withdrawal may be larger
- AdviserGo uses the cumulative unused allowance initially
After the allowance is fully used:
- Withdrawals stop automatically

This option only works with investment bonds.

What Happens After the 5% Allowance Is Used

If planned withdrawals continue beyond the tax-deferred allowance:

AdviserGo begins withdrawing taxable gains instead of principal

To see this:

Go to Year View
Open a later year
Click the investment bond