Having committed to selling their business, our clients needed advice on how to fund their future income. They also wanted to understand their inheritance tax position and put in place planning to ensure the next generation could benefit as much as possible.
The client
David and Sue, a couple in their 60s, had been referred to us by their corporate finance advisor for wealth planning advice in anticipation of the sale of their business. The sale would generate proceeds of c. £8 million. Their main residence, valued at £1.5 million, was mortgage free and they had accumulated various investments and pensions over the years totalling £1.1 million. Up until now, these had been self-managed and they were yet to give much thought as to how they could best use these, along with the sale proceeds, to meet their future needs.
They had enjoyed a good standard of living over the years, drawing significant income from their business to fund school fees, holidays and more recently house deposits for their two children.
Their needs
David and Sue wanted advice on how best to use their existing capital and the proceeds from their business sale to maintain their current lifestyle whilst factoring in several larger purchases as well as provisioning for children and grandchildren. Naturally, they also want to better understand their Inheritance Tax position and the options available to them.
The planning
Firstly, we established a close working relationship with their existing advisers, including their solicitor and accountant who were advising on the business sale. This allowed us to gain a good understanding of their current tax position, legal affairs and also the timing of the capital payments from the business sale and the associated tax liability.
We used this information to create a cash flow model of their immediate and future cash position which formed the basis of their wealth plan. This also allowed us to understand what capital would likely be excess to their requirements given their income and capital needs. This could be earmarked for Inheritance Tax planning.
Having reviewed all their existing investments and pensions we consolidated them onto one platform to simplify their situation and invested them into the appropriate investment strategies for their objectives and attitude to risk.
The initial payment accounted for half of the total sale value. With this, we recommended investing the appropriate amount into a selection of fixed-term deposits with suitable terms to meet their Capital Gains Tax bill when it became due. We then ensured that their ISAs and pensions were fully funded for the current tax year with additional funds set aside to utilised next year’s allowances which were soon to be refreshed. The residual balance was invested in a simple taxable account to meet their ongoing expenditure.
Following our analysis and discussions around their Inheritance Tax Liability, and having already provisioned for their income needs, we planned to use the second instalment to invest in a Family Investment Company. This would create some flexibility with this capital but ultimately allow them to tax efficiently pass on wealth to the next generation using a structure and investments that were familiar to them. The Family Investment Company was funded via a loan, part of which the clients gifted as a potentially exempt transfer to their children on day 1. We then protected the resulting potential IHT liability with a short-term protection policy for 7 years.
We then worked with them and their solicitor to review their Wills in line with their updated wealth plan.
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