Client Case Study


Lauren and Duncan have recently become clients of BRI. The couple’s financial affairs consisted of a variety of arrangements which had accumulated over the years. These included cash deposit accounts, ISAs, pensions, property, unwrapped investment accounts and onshore bonds. Lauren was finding their affairs increasingly complex and overwhelming so felt it was an opportune time to seek financial planning advice.

Duncan owns and operates through his own limited company whilst Lauren manages the business accounts and owns a third of a property company which produces most of their annual income.

Growth within onshore bonds is taxed at a rate of 20% and each of the onshore bonds was limited in respect of fund availability and offered uncompetitive charging structures. We felt that the most appropriate course of action was to assign segments to Lauren and Duncan’s children with the proceeds being gifted back to the parents. The rationale behind this was to make use of their available basic rate tax thresholds, meaning that we could extract the funds without incurring a tax liability, which would have otherwise been the case. This then allowed the proceeds to be reinvested more tax-efficiently.

Lauren had inherited a substantial investment portfolio exclusively comprising directly-held UK equities. The concerns here were around both geographical and asset class diversification. We believed a more diversified portfolio could be achieved though our discretionary managed service which would also allow us to manage the Capital Gains Tax (CGT) position by making use of each of Lauren and Duncan’s Annual Exempt Amount for Capital Gains Tax of £12,300. Our recommendations were to use the onshore bond proceeds along with the available cash deposit accounts, ISAs and the unwrapped investment account to fund three new arrangements.

Firstly, a discretionary portfolio across taxable investment accounts in both Lauren’s and Duncan’s names along with Individual Savings Accounts (ISAs) will be created. Their ISAs would comprise 36% of the wider portfolio, the advantage being that the more income-focused elements of the portfolio can be held within the ISA generating tax-free income, whilst the growth-oriented elements of the portfolio would be retained in the investment accounts and managed in line with CGT allowances. Over time, the portfolio will become more tax-efficient with the taxable accounts being used to fund the ISAs each year.

We also recommended that Lauren invest £30,000 into a Venture Capital Trust (VCT) on an ongoing annual basis. Lauren is expected to remain as a higher rate taxpayer and the tax advantages of investing into a VCT allow Lauren’s income tax to be reduced to £Nil each year. There is the additional benefit of potential tax-free dividends available to supplement their future income. Whilst there is a higher degree of risk due to the nature of the underlying companies here, this is only a small portion of their overall wealth.

Due to the size of the total estate, our final recommendation was to begin to address Inheritance Tax (IHT) by recommending an offshore bond held within a Flexible Reversionary Trust. This type of arrangement places funds into a Trust and will reduce their estate after a period of 7 years; however, any growth in the interim is immediately outside of their estate. A key advantage of this type of Trust is its ability to allow access to a proportion of the funds on a rolling annual basis if required. So should Lauren and Duncan’s circumstances change, they would be able to supplement their income.

Due to Lauren’s higher level of earnings, we felt that this should be held in Duncan’s name; and if access were to be required, then these redemptions would be taxed at a lower rate.

Pension funding will form part of the wider planning; however, we agreed to review this at a separate juncture due to the extent of the initial advice. This process will involve a review of the existing contracts to establish their competitiveness, and maximising contributions. Making contributions through the company may provide the most efficient means of funding as this approach provides Corporation Tax relief without being restricted by their annual salaries. Once funds are held within the pension environment, they will have scope to grow in a tax-advantaged environment and will no longer be considered as part of their estate for IHT. These funds can then eventually be passed on to beneficiaries to provide them with tax-advantaged income or to be retained and passed on through further generations.

Following these actions, Lauren and Duncan’s affairs were greatly simplified, going from eighteen separate arrangements to three – more tax-efficient – arrangements. We have also managed to completely reduce Lauren’s income tax liability through annual VCT investments, and we have begun to make progress with respect to reducing the couple’s IHT liability.

If you or anyone you know could benefit from wealth management advice, please do not hesitate to contact us. Our advisors will take individual circumstances and financial goals into account when creating a financial plan that is carefully tailored to suit an individual situation.

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