Sarah Maguire, Business Development Director and Chartered Financial Planner, tells us about a client who sought our services to mitigate her tax burden.
Her planning objectives were to mitigate Inheritance Tax (IHT), Capital Gains Tax (CGT), and Income Tax. Each of these taxes can drain your wealth, which could increase the time it takes for you to accomplish your financial objectives or result in you having to tolerate more investment risk to try and avoid this.
The case
Sarah took the time to understand the client’s circumstances and goals for the future. This allowed our team to curate a bespoke strategy focused on the specific areas that would best minimise her tax burden.
Following this, Sarah was able to recommend two offshore investment bonds, one for the client personally and the other to be held in a Discretionary Trust so it could include her partner as a beneficiary; this gift was effective for IHT because they are not married. The offshore bonds were used to facilitate a tax-deferred income stream to meet the costs of living.
Using the client’s annual CGT Allowance, Sarah also put in place an annual Bed and ISA reinvestment exercise for her taxable investment portfolio. This is an arrangement that allows you to sell an investment from your taxable investment account and then buy it back in your Stocks & Shares ISA or Lifetime ISA (LISA). Over time, less CGT and Income Tax is paid on the gains from this investment account because the funds are eventually fully ring-fenced by the ISA.
The client’s final concern was gifting money to her family during her lifetime to reduce the contingent IHT bill. Her Self-Invested Personal Pension (SIPP) sits outside her estate and will not be factored in when calculating IHT. Meanwhile, she makes annual pension payments for her children and grandchildren. These are made net of Income Tax and then grossed up by the receiving pension arrangement, providing an immediate tax benefit; they now cumulate gross for the benefit of future generations.
After implementing Sarah’s strategies, the client can be sure that her finances are arranged as tax-efficiently as possible. Not only does this help her make the most out of her own income, but it also provides a generous legacy that can be enjoyed by her descendants, preserving wealth by reducing the amount of tax that would otherwise be haemorrhaged without the use of the investment wrappers selected.
Important information
The contents of this case study do not constitute financial advice. The impact of taxation (and any tax relief) depends on individual circumstances.
This has been prepared based on our current understanding of UK Law, Taxation and HMRC practice, all of which could be subject to change in future. The value of investments can fall as well as rise and it may not always be possible to receive back the sum initially invested. Past performance is not necessarily a guide to future investment returns.
