Two allocations, compared after UK tax
Choose two portfolio shapes and see which one leaves more after fees and UK tax over 10, 20 or 30 years, and why. The difference usually comes less from the gross return than from how that return is taxed.
By Eldar Edmond Grady, CEO, PPLI.com · Research checked 23 September 2026
Character of return decides the tax
A UK resident pays tax at three different rates on one portfolio: the savings rate on interest, the dividend rate on dividends, and the CGT rate on gains when they are realised. Growth that is never sold is not taxed at all until it is.
Two portfolios with the same gross return can therefore end years apart. An income portfolio pays 45% on most of what it earns every year; a low-turnover equity portfolio pays 39.35% on a small dividend and defers the rest. The instrument above measures that gap on the allocations you choose.
Inside a policy holding permitted property the three rates collapse into one, applied at the end. That belongs to the structure instruments; here both allocations are held directly.
The same 8% growth, sold slowly or sold every year
£1,000,000 in an asset returning 8% a year, all of it growth, no fees, 10 years, CGT at 24%.
Never sold, then sold in year 10 1,000,000 x 1.08^10 = £2,158,925
less 24% x 1,158,925 = £1,880,783
All gains realised every year 1,000,000 x (1 + 8% x (1 − 24%))^10 = £1,804,410Realising every year costs £76,373 by year 10 against selling once at the end, because the tax paid each year stops compounding. Held until death, the unrealised gain would pay no CGT at all (HS282), and the direct portfolio would pass at £2,158,925 before any inheritance tax.
What the comparison holds constant
Same engine, run twice
Each allocation is projected on the same capital, horizon and rates. The asset class assumptions (return, fee, income share, dividend share, turnover) are illustrative starting points, not forecasts.
Three differences, kept apart
Gross return is an allocation choice. Fees and first-year tax are the cost of holding it. The verdict shows all three so that a higher gross return is not mistaken for a better result.
What is left out
The CGT annual exempt amount (£3,000) and the dividend allowance (£500) are immaterial at this size and not modelled. ISAs and pensions have their own limits and are outside the model.
Common questions
Why does the higher-return allocation sometimes finish behind?
Because more of its return arrives as income taxed each year, or its fees are higher. The instrument separates gross return, fees and tax so you can see which one decides it.
Are dividends and interest treated differently?
Yes. Dividends are taxed at 39.35% for an additional-rate taxpayer and interest at 45%. Each asset class carries its own share of dividend income.
Instruments and related reading
Wealth simulatorThe whole horizon, with withdrawals, fees and taxOpen →Tax drag calculatorThe annual tax cost, asset class by asset classOpen →Wealth Intelligence profileOne set of facts, carried into every instrumentOpen →Tax intelligenceWhat your UK tax position costs the portfolioOpen →Wealth IntelligenceThe full programme: portfolio, tax, alternatives and structureOpen →PPLI.com is not authorised by the Financial Conduct Authority and does not give personal advice. This is general information about UK law, not an invitation or inducement to enter into any insurance or investment contract. Policies issued by insurers outside the UK are not protected by the Financial Services Compensation Scheme (unless written through a UK branch).
The authorities this page relies on
Income tax, savings and dividend rates
Savings rates 20, 40 and 45% in 2026/27. Dividend rates 10.75, 35.75 and 39.35% from 6 April 2026. Savings rates of 22, 42 and 47% from 6 April 2027 (FA 2026 s.5), shown here only as a labelled option. gov.uk, rate changes
Capital gains tax rates
18 and 24% for disposals on or after 30 October 2024. Business Asset Disposal Relief at 18% from 6 April 2026. Annual exempt amount £3,000. gov.uk, CGT rates
HMRC helpsheet HS282
There is no capital gains tax charge when someone dies. The personal representatives take the assets at their market value on the date of death. gov.uk, HS282
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