Case Studies

David and Susan had a successful marketing business. They had started the business as a partnership 10 years previously and, as they became successful, they were advised by their accountant to establish a limited company.

David and Susan recognized that how they managed their business and its finances directly impacted their personal financial planning. While they were successful with their business and had plans for the future development of their business, they weren’t sure how to make the most of the personal financial rewards and didn’t have specific objectives or plans for their personal finances.

Their accountant had mentioned that making pension contributions could be tax-efficient and David and Susan sought advice from Mayfield IM.

In order to extract the money they needed to meet their living expenses, David and Susan were paying themselves salaries and bonuses as and when their needs dictated. This meant that in some years their respective salaries were well within the basic rate tax band, and in other years they were well into the higher rate tax band.

In the course of our conversations, we explained to David and Susan how they could structure their salary and dividend incomes to minimise their personal tax, while still covering their expenses.

David and Susan were in their early fifties and for both retirement planning and tax planning reasons, it made sense to make substantial pension contributions for both of them from their limited company. By doing so, the business saved corporation tax on the pensions contributions while David and Susan knew that they could draw on the pensions in future at which point their personal tax rates would probably be much lower.

The business had been paying into a company medical scheme which had renewed annually for an ever increasing premium. Our medical insurance brokers were able to improve on the cover provided and reduce the premium.

David and Susan had life insurance in place, but it was not written in trust. We replaced their life insurance with new cover on a nil-commission basis and set it up via the business. This meant that the premium was significantly reduced, and the premium was also a business expense which in turn provided a significant tax saving.

The life cover was written in trust so that in the event of a claim it would not be part of their estate for inheritance tax purposes and would pay out quickly.

Following our advice, David and Susan understood how structuring cashflow and using different forms of remuneration could be used to minimise tax and thereby increase their wealth.

They also understood how pensions and ISAs could be used to further grow their personal wealth in a tax-efficient way.

Should either David or Susan fall ill or die, the business and the surviving Director would be well-protected.

Carol was a partner at a law firm earning £200,000. Her children were grown up and, following her divorce, Carol had transferred most of her pension funds to her ex-husband in return for keeping the house which was worth £800,000.

Carol was keen to rebuild her retirement provision and wanted to understand her options. Carol had three small pensions from previous employment, an ISA through her bank and some life insurance to cover her outstanding mortgage of £200,000.

We consolidated Carol’s pensions and transferred her ISA to the same provider to simplify her finances and reduce costs. We explained the options available to Carol to rebuild her retirement provision while she continued to work, alongside savings options and budgeting to make the most of her available income. We agreed that making pension contributions would be appropriate for Carol and we structured Carol’s pension contributions to maximise the available tax-relief.

We worked with Carol to understand her experience of investing and recommended an investment strategy to build her wealth pre-retirement.

We recommended that Carol obtain a state pension forecast to confirm that she was on track to receive the full state pension, and explained Carol’s options for making voluntary contributions if there was a shortfall.

We reviewed Carol’s life insurance to confirm that it still offered good value for money and was appropriate for her. We also wrote the cover in trust to ensure that it would go to her children and not incur inheritance tax in the event of a claim.

Carol confirmed that she had updated her will post-divorce and we discussed possible strategies for minimising future inheritance tax.

We discussed options for repaying Carol’s mortgage so as to repay the mortgage as soon as possible and in the most tax-efficient way, with the intention of minimising the overall cost of the mortgage.

We maintain regular contact with Carol to help her stay on track to repay her mortgage early having made substantial provision for retirement.

Dominic and Sandra were in their mid-fifties and had had good careers in well-paid jobs. This included a few years working abroad. They had recently returned to the UK to be near Sandra’s elderly mother and wanted to plan for their retirement at 60.

They had returned to their house in the UK and found new well-paid employment.

Over the course of their working lives, they had each acquired a variety of financial products, mainly in the UK but some from their time abroad. They were keen to understand what they had and how they might use their various assets towards their retirement planning.

Their holdings included: a range of savings and deposit accounts, an endowment dating back to their first mortgage, a 25-year savings plan, 7 stocks and shares ISAs with different investment companies, 5 pensions including 2 employers’ pensions, and two international bonds from a company based in the Isle of Man.

We contacted each investment and pension provider to gather a detailed picture of the tax position of each holding, the charges applying, the features and characteristics of each product and where they were invested.

We recommended that Dominic and Sandra obtain specialist tax advice in respect of the international bonds.

We explained how each product worked and important points to consider. Where possible, Dominic and Sandra wanted to consolidate their holdings in order to simplify their arrangements where possible.

We explained that two of the pensions provided valuable guarantees from age 60 and so consolidating those would not be in their best interests. For tax reasons it made sense to leave the international bonds where they were.

The rest of their holdings we were able to bring together which achieved their goal of simplifying their arrangements while at the same time reducing their costs.

Previously, their various investments had been spread across a wide and varied range of assets and sectors. Because of the way they had acquired the investments at different times and under different circumstances, there was no design or structure behind their investment portfolio. We discussed their experience and knowledge of investing and the relationships between different types of investments and between risk and reward. Based on our conversations we agreed on an appropriate investment strategy across all of their holdings, and we arranged the new investments.

We advised Dominic and Sandra as to the most tax-efficient way to structure their pension contributions and maximise tax-relief. This included using the £20,000 proceeds of their endowment and savings plan to make lump sum pension contributions and benefit from tax relief of 40%.

We recommended that they obtain state pension forecasts to check if they needed to make voluntary contributions following their time abroad.

They were aware that they had accumulated some pension benefits overseas and we investigated these benefits to ensure that they would be payable to Dominic and Sandra once they became entitled to receive them.

We also advised Sandra and Sandra’s mother with regards to her investments and estate planning.

We continued to meet with Dominic and Sandra on a regular basis to review their retirement planning strategy including the performance of their investments, taking into account any changes to their circumstances or objectives, tax, and legislation.

As Dominic and Sandra entered retirement, we advised on how best to structure their incomes from their difference sources in order to minimise tax while meeting their needs.

In retirement, we maintain ongoing reviews and contact with Dominic and Sandra to manage their income strategy towards minimising tax and costs alongside an appropriate investment strategy so that Dominic and Sandra can enjoy their accumulated wealth.