Tax-efficient income portfolio question

Yes, SIPP is the obvious choice.
As for income, I don't really know how to invest for growth. i have only ever invested for income and growth always came as an added benefit.

As others have said. It looks income tax heavy from this limited information.

Make use of the annual cgt tax free allowance if possible.

Also cgt tax is less than income tax for now at least so perhaps look to shift some of the assets to those that may generate a capital gain rather than dividend paying.

I'd have to make some assumption here but if he's generating 50k in dividends this might imply at least a £1.25mm equity portfolio (say 4% dividend if in UK equities, possibly double that if in US equities). With £40k of P2P income at say 8% (net of defaults) that is another £0.5mm. I'd clearly agree about maxing out ISAs and SIPPs where possible. Assuming that had be done, however, I'd then consider a life insurance bond. You can't have single stocks or loans in a life bond but you can have funds. So he could focus on HYP type equity funds or ITs and replace some of the the P2P loans with the likes of FCIF, P2PGI or even things like renewable energy funds (BSIF etc). This assumes he's very focused on income; I'd say that a more balanced focus on growth + income would be more sensible.  

So lets say he puts £1.5mm of that £1.75mm in the life bond. We'll assume returns are 3%+CPI on the portfolio and that he withdraws £60k/year (CPI-linked) from the bond. So by year 20 (when he is 87), he has withdrawn £1.487mm from the bond. This is under the initial £1.5mm notional and he would never break the cumulative 5%/annum allowance of the bond (i.e £75k). So these withdrawals are all tax free.

The residual left in the bond at that point is £1.598mm (£1.075mm in real terms). The problem with life bonds is that all gains are treated as income, which is not tax-efficient when the marginal rate is 45% (vs. CGT at 20%). However, at this point he can use top-slicing relief. If he extracts £89k in year 20 (£60k in real terms), he will be taxed at his marginal rate on £4.5k/annum (89/20) of income (x 20 years). This should allow him to stay in the 20% tax band. 

We're using something similar. I'm early 40s and intend to retire at 50 (at the latest). We're maxed out on ISAs and under fixed-protection on SIPPs, so a life bond was the next best option. At 50 say, once retired we'll start drawing £150k/annum from the bond (under the 5% allowance so tax free) to pay for living costs and school fees. At 70 we can draw the SIPPs and still sell down life bond units via top-slicing relief (or if we emigrate and just take it all tax free). The children are named in the life bond so we can transfer excess units to them to to avoid IHT. 

Interesting. I have always avoided insurance products like the plague (high charges and had bad experiences with them myself). I don't know much about tax reliefs on these products. Will read up on it. What happens if the returns are quite a bit below the assumption? (3%+CPI) I would have thought the charges will be in the region of 3-4% (including fund management TERs), negating most of the return that can be had from dividends (4-5%). 
Maybe there will come a crash soon and dividends will be slashed by 50% and peer2peer phenomena will implode. Problem solved! :-) (I hope not).

Old post, but just came across it by accident so resurrecting the thread.
At first glance 35bp per annum sounds small, but this is a charge on the capital sum. Given that a global diversified portfolio would yield around 2.5%, this is equivalent to approx 14% dividend tax upfront, instead of 38.1%. However, the remaining amount plus the entire growth will be taxed on exit at income tax rates, as opposed to 20% CGT.
Say for example you invest £1m, and 20 years later you have withdrawn the capital leaving the growth. Say that growth is £1m in capital appreciation plus £1m in rolled up dividends. You have paid a bit over £100k in costs (avg account size * 35bp * 20 years). You can take out the sum paying income tax rates (at best 40%), so you'll have made £1.1m in total.
If you had the capital in a personal capacity, you would have paid 38.1% div tax all those years, say £380k (calculating it on the average div amount so it accounts for the loss of compounding), and then another £200k CGT at the end, and you will have more than £1.6m total net gains, a 500k improvement.

FAQ:
1. But for the first 20 years I pay no tax while I withdraw 5% of my capital every year.
Answer: there's no charge for consuming capital any way so you wouldn't be paying tax if you consumed that outside the bond, and you would even have more flexibility

2. 35bp is comparable to many fund platforms' fees.
Answer: you can easily avoid these in a personal capacity. Open an account with Interactive Brokers and trade the cheapest ETFs for almost free.
Bonus answer: you can claim a credit for foreign tax withheld in dividends paid to you. For US funds that's 15%, which means your actual dividend tax liability will be reduced to 38.1% - 15% = 23.1%. You can't reclaim these within the bond, so you'll be further behind than what I wrote above.

Counter-counter argument:
I can see a case where this structure may work reasonably well. If the investments held in it are high yielding ones that would be taxed at income rates anyway, such as P2P lending. In that case the benefit of compounding and potentially being at a lower tax bracket on exit (even 40% vs 45%), may be worth to overcome the 35bp charges.

Agree about P2P.

My point was stick to cheap diversified index investing,

For an OAP one of the vanguard life strategy funds will do.