How We Model
This page explains how FutureClear's simulation engine works. We've written it for people who want to understand what's happening under the hood before they trust the numbers.
Reviewed by the FutureClear team · Last reviewed 5 July 2026
The year-by-year loop
The engine simulates your entire financial timeline from today until life expectancy. It processes each year individually in a 28-step pipeline, then carries the results forward. Every year depends on what happened in the year before it — tax in retirement is path-dependent.
Collect income
Employment, self-employment, pensions, rental, state pension
Process life events
Retirement, downsizing, property sales, mortgages, one-off costs
Generate withdrawals
From your assets in your chosen order, to cover the year’s spending
Deduct spending
All committed spending for the year
Calculate and pay tax
Full UK tax bill for each partner, paid in the year it accrues
Apply growth
Investment returns on remaining balances
Carry forward
Everything feeds into the next year
This is a simplification — the actual pipeline has 28 steps covering pension crystallisation, annuity purchase, scheduled drawdowns, Bed-and-ISA transfers, mortgage amortisation, VCT events, capital gains cost-basis tracking, surplus sweeps, and pension allowance monitoring. But the core idea holds: a single formula can't capture path-dependent tax. Each year's output feeds the next.
Tax calculation
The engine calculates UK tax for each partner, for each year. All thresholds use published HMRC figures for 2026/27 — £12,570 Personal Allowance, £50,270 basic rate band, £125,140 higher rate threshold. These are the actual numbers, not approximations.
Income tax
All taxable income aggregated and run through the standard bands. The Personal Allowance taper above £100,000 is modelled precisely — the notorious 60% effective rate.
National Insurance
Class 1 employee contributions on employment income, and Class 4 on self-employed profits. Both cease automatically at State Pension age.
Dividend tax
Dividend income from GIA holdings, stacked on top of other income. Included in adjusted net income for the Personal Allowance taper — a detail many calculators miss.
Capital gains tax
Gains from GIA disposals and Bed-and-ISA transfers. Annual CGT allowance applied, rate determined by total income including dividends.
Marriage Allowance
Automatic transfer of unused Personal Allowance between partners where eligible, re-evaluated each year as circumstances change.
Section 24 mortgage interest
20% tax credit on buy-to-let mortgage interest, with unrelieved finance costs carried forward to later years.
Savings interest
Interest on cash and GIA holdings taxed with the Personal Savings Allowance and the starting rate for savings. Cash ISA interest and Premium Bond prizes stay tax-free.
Scottish rates
Scottish income tax bands applied per partner based on residency — a couple split across Scotland and the rest of the UK is calculated correctly for each.
Tax timing: The engine calculates each year's full tax bill and deducts it from cash in the same year it accrues, so year-end balances are already net of tax. Capital gains tax on residential property sales is paid on its own in-year path, mirroring HMRC's 60-day reporting rule.
Frozen thresholds: Where the government has frozen a threshold in cash terms — the Personal Allowance and income tax bands to 2030/31, and allowances like the CGT exempt amount with no announced end date — the engine models the freeze rather than assuming thresholds rise with inflation. Fiscal drag is part of the projection, not an afterthought.
For a detailed walkthrough with worked examples, see How We Calculate UK Tax Year-by-Year.
Monte Carlo simulation
A single projection assumes investment returns are the same every year. They aren't. Some years markets return 15%, some years they lose 10%, and the order matters — a bad sequence of returns in early retirement can deplete a portfolio that would have survived under average conditions.
Monte Carlo simulation runs the same scenario between 1,000 and 10,000 times, each with a different randomised sequence of annual returns drawn from a log-normal distribution — calibrated so that volatility drag is properly reflected rather than quietly inflating the average outcome. The output is a set of percentile bands showing how wide the range of possible outcomes actually is.
Single projection
One line on a chart. Assumes the same return every year. Tells you almost nothing about the range of things that could happen.
Monte Carlo
A thousand runs. Randomised returns drawn from a realistic distribution. Shows the spread of outcomes and how sensitive your plan is to market variability.
Withdrawal ordering
When your spending exceeds your income in a given year, the engine draws from your accounts in the order you've specified. Six sources can be ordered: GIA, SIPP drawdown (fully taxable), SIPP UFPLS (25% tax-free, 75% taxable), ISA (tax-free), Premium Bonds, and LISA. The tax implications of each withdrawal feed back into that year's tax calculation.
Advanced ordering adds conditions to each source — draw from the GIA only within the CGT allowance, or from a pension only while within the basic rate band — and the same source can appear more than once with different conditions. For couples, each source specifies which partner draws first.
New scenarios start from a neutral, uniform order that you're prompted to review. The order you choose can substantially affect your lifetime tax bill. FutureClear shows you the consequences of different orders — it doesn't tell you which order to use.
Data sources
Where there's a published source, we use it. Where we've made an assumption, we tell you what it is and let you change it.
Tax rates and thresholds
HMRC published rates, updated annually
State Pension
£12,548 (2026/27), triple lock assumptions visible and adjustable
Life expectancy
You set the projection horizon. ONS national life tables provide context on how your chosen age compares with survival data
Care cost escalation
Default CPI + 2% a year in real terms — the conservative end of the CPI +2–4% range observed in the LaingBuisson care-fee series against ONS CPI, and the Competition & Markets Authority Care Homes Market Study (2017). Adjustable per scenario
Investment returns
Consistent with UK financial planning defaults — adjustable per scenario
Inflation
User-configurable, long-term default visible and changeable
What we don't model
Every model makes simplifications. We'd rather be upfront about these gaps than pretend the model is more comprehensive than it is.
Class 2 National Insurance
Class 1 and Class 4 are modelled. Class 2 is deliberately excluded — compulsory Class 2 was abolished for most self-employed people from 2024/25.
DB pension commutation factors
DB pensions support escalation, a tax-free lump sum, and a survivor’s pension. There is no commutation-factor mechanism — you enter the lump sum amount directly — and early retirement reduction factors are not modelled.
Inheritance tax
Not currently modelled. On the roadmap.
Benefits and means testing
State benefits, pension credit, and means-tested entitlements are not modelled.
Stochastic mortality
Each projection runs to the life expectancy you set. Death is not sampled from mortality tables — ONS life tables are used only to show how your chosen age compares.
Event timing
Events are day-dated and amounts are prorated within the year, but events activate on a yearly grid rather than mid-year.
Over time, we're working to close the gaps that matter most. If a simplification is likely to affect your projection materially, the tool should tell you.
Verify it yourself
Every tax constant in the engine references the current HMRC published figure. The year-by-year results table shows the full breakdown for each year — income, tax, withdrawals, balances — so you can check individual years against your own calculations or against HMRC's income tax calculator.
If you find something that looks wrong, we want to know. Email info@futureclear.co.uk and we'll investigate.