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Understanding Net vs. Gross Planned Spending in Timeline Planning | Timeline Help Centre

Summary

  • Timeline Planning calculates the total tax required to meet a client’s planned spending.
  • It incorporates secure income sources (e.g. State Pension) before determining portfolio withdrawals.
  • Supports both:
    • Net planned spending (what the client receives after tax)
    • Gross planned spending (before tax)
  • Uses accurate gross-to-net and net-to-gross tax calculations.
  • Ensures consistent outcomes, regardless of which input method is used.

Description

Planning retirement spending isn’t just about how much a client wants to spend—it’s about how much they need to withdraw after accounting for tax.

Timeline Planning’s engine is designed to solve this precisely by handling both:

  • Gross → Net calculations (What do I end up with after tax?)
  • Net → Gross calculations (What do I need to withdraw to achieve my target?)

This is critical because clients naturally think in net terms (“How much can I spend?”), while portfolios operate in gross terms.

Net vs Gross Planned Spending

Net Planned Spending

  • Represents take-home spending after tax
  • Timeline calculates the gross withdrawal required to meet this target
  • Most aligned with real-world client thinking

Gross Planned Spending

  • Represents total withdrawals before tax
  • Timeline calculates the net amount available after tax
  • Useful for modelling but less intuitive for clients

How Timeline Calculates Withdrawals

The engine follows a structured approach:

  1. Apply secure income first
     (e.g. State Pension)
  2. Determine remaining spending need
  3. Calculate tax impact using current tax bands
  4. Compute required withdrawals from portfolios

This ensures:

  • Tax is fully accounted for
  • Withdrawals are realistic
  • Plans remain internally consistent

Example

Example 1: Gross Planned Spending

Inputs:

  • State Pension: £11,502
  • Target gross spending: £70,000

Step 1: Required withdrawal

  • £70,000 − £11,502 = £58,498

Step 2: Tax calculation

  • Personal Allowance remaining:
    £12,570 − £11,502 = £1,068 → £0 tax
  • Basic rate (20%):
    £37,700 → £7,540
  • Higher rate (40%):
    £58,498 − £37,700 − £1,068 = £19,730 → £7,892

Total tax: £15,432

Net withdrawal:
 £58,498 − £15,432 = £43,066

Example 2: Net Planned Spending

Inputs:

  • State Pension: £11,502
  • Target net spending: £54,568

Step 1: Required net withdrawal

  • £54,568 − £11,502 = £43,066

Step 2: Reverse (net-to-gross) tax calculation

  • Personal Allowance:
    £1,068 → £0 tax
  • Basic rate (20% equivalent → 25% gross-up):
    £30,160 → £7,540 tax
  • Higher rate (40% equivalent → 66.67% gross-up):
    £11,838 → £7,892 tax

Total tax: £15,432

Gross withdrawal:
 £43,066 + £15,432 = £58,498

Total gross spending:
 £58,498 + £11,502 = £70,000

Key Insight

Both approaches produce the same result:

  • Gross spending: £70,000
  • Net spending: £54,568
  • Total tax: £15,432

This validates that Timeline’s engine is internally consistent and mathematically robust.

Conclusion

Timeline Planning’s tax engine bridges the gap between how clients think (net) and how portfolios behave (gross).

By accurately modelling both directions of tax calculation, it enables advisors to:

  • Define realistic spending targets
  • Ensure tax-aware withdrawal strategies
  • Maintain consistency across scenarios
  • Deliver clear, client-friendly advice

Ultimately, this capability transforms tax from a hidden complexity into a transparent and optimised part of the planning process helping clients sustain their lifestyle with confidence.


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