Although the following case study relates to an actual example, where we have helped our clients by providing solutions to their financial problems, the names and figures have been changed for confidentiality purposes.

Lorna and Peter’s background

Rachel met Lorna and Peter through another client who had been very happy with the advice received she referred her neighbours. Both Lorna and Peter were retired and had grown up children.

Lorna and Peter were both in receipt of private pensions and State Pensions and also had other pension pots which had not been touched as they were not needed. They also had large sums in the bank across in current accounts and surplus income.

Neither Lorna or Peter had any knowledge of Inheritance Tax and how it applied to them or the possible implications but they both had Wills and Powers of Attorney.

Planning process

Rachel chatted to Lorna and Peter about what they were seeking by coming to see her. The conversation led to a firm goal of leaving as much of their estate to their children as possible but they also wanted to ensure they could still enjoy their retirement while they were relatively young. They agreed that they did not  currently have a co-ordinated approach to this.

Firstly, Lorna and Peter’s pension pots were not being managed for them and they were not receiving any ongoing advice on these. Therefore, they did not have a feel for the performance or risk attached to the underlying investments.

Secondly, they were building up significant sums in cash and whilst they drew comfort from seeing the balance on their account, after calculating the impact of inflation over the years they were quite shocked to see the real term risk to that cash.

A lifetime cashflow model allowed Rachel to show them in visual terms how their estate may build up over their lifetime and Rachel also calculated the possible Inheritance Tax burden their loved ones would likely face. It also allowed Lorna and Peter to dream of the retirement they wanted and understand how the cost of this fitted into their plan.

Lorna and Peter’s plan

Rachel took time to explain the various Inheritance Tax exemptions such as regular gifting our of surplus income. This fitted them perfectly as their goal was to use their surplus income more efficiently.

The second issue was the significant cash on account. Rachel talked Lorna and Peter through using their annual gifting allowance and investing into a Gift Plan. This is an Investment Bond gifted into Trust.

Doing this Gift Plan would begin the IHT 7 year period to remove the sum gifted out of their estate. This will save on the IHT which would otherwise have been due on the money at death. The investment Growth on the Gift Plan will immediately be outside of their estate. Furthermore, they could also ensure exemptions available to them were not lost. In other words, by utilising the previous year’s annual gifting allowances – ‘use it or lost it’. These allowances were set against the gifts they then made to the Gift Plan.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested. Equities do not provide the security of capital which is characteristic of a deposit with a bank or building society.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances. 

The advice provided to Lorna and Peter was given after a full evaluation of their specific needs, circumstances and requirements. The solutions provided would not be suitable for most investors and the information provided does not constitute advice.