Storrs Wealth Management Case Studies
Case study 1: Business Inheritance Tax planning
Referral from Accountant
Brian & Louise wanted to pass on us much to their children and grand-children as possible. A large proportion of their capital was held as cash inside a limited company, which complicated the issue for them. They were aware that they might require access to some of the capital and a continuing income from company dividends, to provide for themselves in later life.
The limited company was not and had never carried out a qualifying trade to gain Business property relief against Inheritance Tax.
They wanted to discuss the available solutions and whether to remove large sums from the limited company, with inherent tax implications or whether they could leave the funds in the Company & somehow gain exemption from inheritance tax.
Invest a cash lump sum in Business Property Relief qualifying investments, held in the name of the limited company, whilst leaving a cash pot available to pay dividends. The investments can be liquidated if capital is required, allowing continued access to the funds and achieving Inheritance tax mitigation after a 2 year qualifying ownership period.
Avoided the need to extract money from the limited company and gift assets to mitigate Inheritance tax, requiring income tax mitigation & a survival period of 7 years and loss of ownership of the capital. Tax mitigated after 2 years ownership, with funds available for use in later-life if required.
We also identified that they needed to begin the process of applying for lasting powers of attorney and referred them to a local solicitor.
Case study 2: Starting a pension
This is a fairly common scenario
Mr Jones is higher rate tax payer and Mrs Jones is a basic rate tax payer. There estate is above the joint Inheritance tax Nil Rate band. They wanted advice on tax and pension planning.
Mr Jones has significant pension funds, including a defined benefit plan and is likely to be a higher rate tax payer in retirement. Mrs Jones is likely to be a non-tax payer in retirement and has no pension provision at the moment. She is entirely dependent on her husband and the state for retirement income.
Whilst further pension contributions under the Annual Allowance were possible for Mr Jones, the softer facts surrounding Mrs Jones lack of provision in her own right and a possible, though unlikely future divorce were discussed.
The solutions were discussed and the use of EIS and VCT solutions were discussed and dismissed.
Discussion about future plans, lifestyle and required net income.
Discussion around the trade-off between tax relief now and lower overall tax on joint income in the future. Analysis of scenarios based upon early demise of either Mr or Mrs Jones.
Set up a personal pension for Mrs Jones paid from their joint Net income.
20% tax relief via the scheme on the contributions as opposed to a total of 40% available if into Mr Jones pension.
At retirement a proportion, if not all of Mrs Jones’ retirement income would suffer no tax if current rates and allowances prevail, thus mitigating the 40% payable by Mr Jones. This effectively reduced the overall tax liability for them as a couple.
Mrs Jones has a personal pension in her own right and feels more confident about her financial future.
Inheritance tax mitigation started.
Under the new rules she will have access to the entire fund if required from age 55.
The policy proceeds are available as a tax free lump sum or tax free income for her husband and children on her demise before age 75. The proceeds are not part of her estate for inheritance tax, moving them from the joint account where Inheritance tax would potentially be due.
Case study 3: Trusts
Referral from Accountant
The Trust chairperson asked me to have an initial meeting with the trustees.
The trustees were concerned that they were no longer receiving ongoing reviews from their existing advisory firm and that the monies were invested in an adhoc, piecemeal fashion. They wished to consolidate and simplify the trust investment portfolio, whilst reducing overall costs and re-instating an ongoing review process.
There were no documented reviews or Investment Policy Statement (IPS) in place to guide the Trustees and advisers.
No obligation introductory meeting with Trustees to explore the issues.
Following decision to appoint us as advisers, an Investment Policy Statement was discussed and created.
Authority was given over the investment platform & investments reviewed
The Trustees Attitude to risk, Capacity for loss, goals, income and capital requirements were discussed.
The portfolio was reviewed and changes were made.
Ongoing review process was put in place.
Investment Policy statement created as good practice and to aid compliance with Trustee Act 2000.
Attitude to Risk and Capacity for loss reviewed
Income and expenditure reviewed
Ongoing review service in place to ensure ongoing compliance with Trustee Act 2000
Case study 4: Lifetime Allowance Tax planning
David has a salary of £190,000 from the government with an active Defined Benefit (final salary) pension. In addition he and his wife Sandra have personal pensions.
The changes in recent legislation left David with an Annual Allowance Charge based on his accrued pension benefits within the government scheme, in addition the budget has pushed his accrued benefits over the Lifetime Allowance.
Invest a cash lump sum in Enterprise Investment Schemes to mitigate income tax, with the added benefit that they qualify for Business Property Relief after holding them for 2 years, mitigating Inheritance tax.
Transfer the personal pensions to a bespoke family SIPP, with David, Sandra & the children as members to allow future growth in fund values to be transferred away from David.
Mitigated the Annual Allowance charge via the income tax reclaim on David’s self-assessment form.
David’s fund values are capped by assigning further growth to the other members of the family SIPP, thereby preventing an increase in the Lifetime Allowance charge due.
Case study 5: Inheritance Tax planning
Referral from existing client
Graham & Martha wanted to pass on us much to their children and grand-children as possible. However they were aware that they might require access to most of the capital and income to provide for their care in later life.
They had a wide variety of investments and Life assurance products which needed reviewing to ascertain their continued suitability & efficacy.
Place the existing whole of life policy into trust in order for the proceeds to be exempt from Inheritance tax.
Begin to take capital payments from their existing loan trusts and spend them as “income”. The outstanding loan is paid back to the estate on their demise so loan repayments should be taken and spent or gifted for the planning to be effective. Alternatively the outstanding loan can be waive in favour of the Trust and a seven year survival period is required for the loan proceeds to be outside the estate.
Invest a cash lump in Business Property Relief qualifying investments to allow continued access to the funds and achieve Inheritance tax mitigation after a 2 year qualifying ownership period.
Original plans used in the correct manner to suit their circumstances
Existing Life Policy place in Trust to give Inheritance tax free proceeds to the Trustees to pay outstanding Inheritance tax (if any)
Avoid need to gift assets to mitigate Inheritance tax, leaving funds available for use in later-life if required.
We also identified that their wills needed updating and that it was a good time to
begin the process of applying for lasting powers of attorney and referred them to a local solicitor.
Case study 6: ISA Income portfolio & ISA IHT Planning
Marc & Jane are higher rate tax payers, who have just retired and have built up investment ISAs over the years. They would like more income and also to begin to mitigate inheritance tax, as their estates are above the joint Inheritance tax Nil Rate band.
The investments they hold are aggressive in nature having been purchased in excess of 20 years ago and have grown significantly in value.
They would like to be more cautious now that they are no longer working and would like additional income to bring them closer to their pre-retirement income.
Discussion about future plans, lifestyle and required net income.
After ascertaining their attitude to risk and capacity for loss it was decided to create tax efficient income portfolios from their existing investments.
The new investments were aligned to their retirement attitude to risk & capacity for loss.
Tax-efficient income was generated from the ISA investments.
The income generated was in excess of their requirements.
They began to claim the gifts out of regular income exemption from inheritance tax, allowing them to gift excess income and obtain immediate relief against inheritance tax, without a 7 year survival period requirement.