Case Study - John & Mary

The irony of Inheritance Tax

John & Mary

John & Mary were in their late 60's and happily enjoying their retirement. And so they should! John had worked long and hard in a company that he had helped to grow over many years. He had benefited from his share options. He had accumulated some real wealth. They had plenty of income in retirement; from his Final Salary pension, some private pensions, interest off their savings and dividends off their shares and investments. They were comfortable.

As 'empty nesters' they were about to downscale - their three children had all moved on and their five bedroom house was now too big for them. They had found a smaller property with the added benefit of being even closer to their golf club!

Perfect. This property move would soon see £550,000 going from bricks and mortar into savings.

But what were the implications? And what did it mean in terms of Inheritance Tax?

A golfing pal encouraged John to meet with Henwood Court.

Henwood Court first spent some time getting to know John & Mary, and to understanding the facts about what they had accumulated - their capital position, and their sources of income. Then they helped them to identify the cost of the lifestyle they wanted to continue to enjoy. Henwood Court also helped them to visualise what else they might like to do in their lifetime in order to get the most from their remaining years.

Then we 'crunched their number' and began work on their financial plan.

This is what we found. Based on their conservative assumptions, even allowing for inflation and for the potential costs of long term nursing care, John & Mary would NEVER run out of money. In fact their wealth would continue to grow, even after allowing for extra expenditure.

But John & Mary had a big problem - a different problem to most. They weren't going to run out, but die with TOO MUCH!

Why's that a problem? Because, despite paying hefty taxes for many years on everything they'd ever earned (tax and NI), on pretty well everything they'd ever spent (VAT), on John's shares in the company (CGT), on every house they'd brought (Stamp Duty), they were about to pay another slug of tax (£24,000 to be precise) when they downscaled their house.

Tax! Tax! Tax!

But there was an even bigger tax bill just down the road.

Henwood Court helped John & Mary realise the size of the problem, and alert them to the fact that much of their hard earned estate was going to benefit someone who had already done very well from them. The Chancellor! If they died soon their Inheritance Tax bill was going to be well over £1 million. And it was going to get worse the longer they lived.

But it didn't have to be that way. Henwood Court helped John & Mary work out just how much more they could afford to spend, how much they could afford to pass on to their children right NOW (outright and into trust), and how much they could drip feed to their family over the next ten years without ever running out. They helped them create a carefully structured affordable 'spending & gifting programme'.

John & Mary are now on course to eliminate their Inheritance Tax liability, to manage their wealth in a way that gives them the life they want, and to gradually pass funds down to their family so the Chancellor does not benefit - seeing the children benefit from their hard work is very rewarding.

All this is possible now that they know, and understand, their financial affairs better.

This case study is and based on a client scenario to illustrate our typical client work and advice process. Identities have been changed to protect privacy.