Scott Gallacher, Rowley Turton
Scott Gallacher, a director at Leicester-based Rowley Turton, made substantial savings for one client with around £2.7m in assets and an inheritance tax (IHT) liability of about £856,000.
The client already had life assurance in place to cover £250,000, which pays out tax-free and in full from the first premium, and would help the client’s children cover the cost of IHT.
Scott advised the client to take out a further £600,000 in cover at a cost of around £2,700 a month, paid out of normal expenditure. The new policy was written into trust so the proceeds would not be subject to IHT. “This automatically covered the additional £600,000 liability,” says Scott.
The £850,000 worth of cover took care of the immediate IHT concern, but the adviser used it in conjunction with other end-of-year tax planning measures to reduce the tax bill further and mitigate the cost of the life insurance premiums.
He used the ability to hold AIM shares, which attract business property relief and are exempt from IHT after a two-year holding period, in an ISA to provide a further potential saving of £63,000.
As the client had a large share portfolio, there would be a capital gains tax bill on its disposal, so Scott advised that these be gifted to a discretionary trust to claim hold-over relief and defer the tax to a later date. The client gifted £295,000 to the trust, which starts the clock ticking for the seven-year chargeable lifetime transfers rule, saving another possible £118,000.
The use of life insurance alongside investment planning meant the client was covered whether they lived a long or short life.
Darren Lloyd Thomas, Thomas and Thomas Finance
A shock redundancy meant a swift financial plan had to be put in place to save one Welsh advisory firm’s client thousands of pounds in tax.
Darren Lloyd Thomas, a director of Thomas and Thomas Finance in Haverfordwest, helped his client to make full use of his annual pension allowance and pay less in tax after he lost his job at a local oil refinery.
He received a substantial redundancy bonus which took him over the £100,000 income threshold, meaning he lost most of his personal allowance. “To add insult to the injury of redundancy he was faced with paying a lot of tax,” says Darren.
The adviser contacted the client’s employer to work out how much of his annual pension allowance had been used over the previous three tax years and then used some of the bonus to mop up payments into a private pension.
“He got his personal allowance back because he made pension contributions which meant we could drive the income level back down to below the danger threshold; this gained him back 20% basic rate tax relief immediately,” says Darren.
“After that we put him in touch with a local accountant who, through self-assessment, got him back another 20% tax. We immediately saved £12,500 plus a further £13,500 via his tax return.”
When the tax rebate materialised, the adviser used it to utilise the client’s ISA allowance for the year.
While the situation was undoubtedly a win for the client, Darren’s business also gained.
“The client told his friends about what we did and we received ten new clients with around £100,000 of investable assets each: that really propelled our business forwards last year,” he adds.
Yvonne Goodwin, Yvonne Goodwin Wealth Management
The unusual scenario of a 75-year-old client still working full-time called for some unusual and clever tax planning from another adviser.
Yvonne Goodwin, Managing Director of Leeds-based Yvonne Goodwin Wealth Management, had to come up with a unique retirement strategy for this particular client, the director of a successful business.
She recommended that he sacrifice his salary in lieu of pension contributions to receive tax relief on the retirement savings while reducing his income tax bill to nil.
“Since he hit 75, he cannot make pension contributions and get tax relief,” says Yvonne. “However, it is allowable as a business expense by the company, so he elected to receive a pension contribution instead of a salary.”
The adviser had previously deferred the client’s state pension, giving him a 10.4% annual boost for each year deferred, meaning his state pension entitlement had risen to around £12,000 per year.
“Although still working, he started to draw the state pension at age 74 and every six months he would take some tax-free cash from his [personal] pension, depending on whether he wanted to spend the capital or not, and then take a bit of drawdown as well if needed,” says Yvonne.
While he had paid “a lot” of tax in previous years, Goodwin saved her client £8,000 in the first year of this retirement strategy and another £8,500 in the second year.
“It is an unusual scenario – to have someone at that great age working in a successful business, but the strategy has worked well for him,” she adds.