CASE STUDY

This case study is based on a real client


Rob is a successful 49 year old senior executive who has recently left a large FMCG company. He has accrued £750,000 in two ‘money purchase’ pension pots plus £12,000 per annum in final salary benefits, payable from age 65. He has a variety of investments mostly, and very sensibly, held in ISAs in his and his wife’s names (and 3 for his children using a special Inheritance Tax allowance). He has made basic arrangements for Inheritance Tax issues, which are likely to be considerable, and is keen to help his young grown-up children in years to come without “ruining their endeavour”. He also has a pension promise from a previous employer and currently works as a non-executive Director for three large companies, but no longer accrues pension benefits. Quite sensibly, Rob applied for “Individual Protection 2014” in the sound belief this will save him paying tax at a rate of 55% on any benefits taken in years to come that exceed the current limit of £1M.

But there is another way to look at Rob’s situation. 

Instead, Rob can shield his £750,000 fund in a “Family Trust” that will let him pass on any investment growth to his wife, Janet, and three children, meaning his own fund never grows beyond the original £750,000, thereby saving tax of 55% and using-up Janet’s income allowances where she would pay tax at 20% (given her modest pension investments). Then, when they feel comfortable with their own assets, they have the option of passing-on any future growth to their children into a pension environment, meaning the children have a head start in that respect for the rest of their lives. But more than this, when Rob and Janet die, the full value of their pension pots that haven’t been taken so far can pass to the children Inheritance Tax free under flexible pension rules. In this example Rob and Janet can save hundreds of thousands of pounds in a combination of Lifetime Allowance, Income and Inheritance Tax. Please note this is an example and assumes rules and tax rates stay the same as they are currently – April 2016. One thing is certain though: the rules will change, so Rob and Janet regularly review their affairs to make the most of whatever the Chancellor throws at them.



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