Wealth Planning case study
Put the future in focus
Here, we look at a couple who found themselves needing comprehensive financial advice following the sale of the family business.
The scope and results of a thorough financial plan will be different for everyone; at Barclays Wealth Management we take the same personalised approach with all of our clients. Here, we look at a couple who found themselves needing comprehensive financial advice following the sale of the family business. Our Wealth Manager, Richard Clark, drew together the experience of the wider Barclays team to build a robust and enduring solution that met his clients’ needs for reliable income, inheritance planning and tax efficiency.
Richard met with the couple when they were both in their early sixties and had recently sold a successful family business they had spent many years building. Both were still employed in the business and in good health but were looking towards the future, wanting to generate an income from their wealth to support them in later life. With financially independent children, they were wary of passing over too much wealth too soon to the next generation, having already given them a helping hand some years previously, but were keen to consider ways in which they could support their grandchildren.
They had plenty of resources at their disposal after the sale of their business with £5m cash received from the sale itself; a further £500,000 already invested in an investment portfolio (some of it within ISAs); £1.5m in pensions and an investment property worth around £200,000.
The most important part of any Wealth Planning process is the time taken to understand a client’s unique circumstances, their objectives and their financial personality. Our Wealth Managers can draw upon a range of internal and external experts and Richard initially introduced David Clark, one of our Wealth Planning specialists, once he had identified the client’s circumstances and objectives. Collaboratively, Richard and David took a great deal of time to understand the couple’s needs before co-ordinating an initial framework for their consideration.
The couple wanted to generate around £100,000 of income per year from their assets, believing this should be more than sufficient to support them in their current lifestyle, and into the future. A potentially significant inheritance tax liability loomed, following the sale of their business. None of the assets they currently held were eligible for business relief and their estate was potentially facing a large inheritance tax bill. They wanted to ensure some of their estate was preserved for future generations but were wary of giving up access to large amounts of their wealth having already funded property purchases for their children.
In terms of their financial ‘personality’, their comprehensive assessment and subsequent conversations showed they would be comfortable with a ‘moderate’ level of risk. They already had some familiarity around financial products and a good understanding of the potential risk and reward of stock market-based investments. As it was, their income requirement didn’t require them to take significant risk with their capital. Please remember that values of investments and the income from them can fall as well as rise and you may get back less than you invest.
After several initial meetings understanding the client’s needs and current position, Richard and David discussed a number of ideas that could be considered in greater depth. The inheritance tax problem was a priority: the first problem was the loss of business relief following the sale of the company shares. This change could have significant consequences for the preservation of wealth between generations.
As part of the overall plan, Richard and David considered the amount needed to be held in cash – and how this could be used to fund expenditure, whilst also balancing investment risk. This would influence how much would be held in an instant access account versus notice accounts. Cash balances are about peace of mind as well as portfolio efficiency; the clients and their Barclays Wealth Management team concluded that £100,000 in an instant access account was appropriate, providing access to £7,000 through monthly withdrawals to fund expenditure for over 12 months. Another larger sum was divided between a series of notice accounts and term deposits with higher interest rates, locking cash up for slightly longer periods.
The balance of available funds was split between solutions designed to achieve the clients’ expectations for investment returns and funds allocated towards reducing potential exposure to inheritance tax. The investment planning portfolio took the bulk of the assets, with £3m split across a diversified taxable investment portfolio (£2m invested over a period of months) and an offshore investment bond (£1m). The taxable portfolio helped ensure that the clients both used all of their available tax allowances, including preserving their personal allowances (becoming available should their employment income cease), savings and dividend allowances, capital gains tax allowances and also providing assets to automatically fund their annual ISA allowances each year. Our portfolio management team were responsible for building out the underlying investment portfolios using the Barclays proprietary asset allocation and investment selection process.
Estate planning solutions took a more modest amount of their wealth, in keeping with their desire not to lose access to too much capital. We recommended that they each set up discretionary trusts, utilising the nil rate bands, with funds earmarked for future generations, including their children and grandchildren. We also organised whole of life insurance. While the clients could see the value in such a policy, they were nervous around the medical underwriting process and wary of invasive medical tests. David drew on his strong relationships with a number of preferred insurance providers, and was able devise a solution that avoided these requirements. Barclays Wealth Management, while tax aware, does not provide personal tax advice, instead working alongside your tax advisers as required.
The final piece of estate planning was for the clients to invest £500,000 into investments that qualify for business relief. This met the conditions to be treated as replacement property allowing them continuation of business relief, removing the two year qualifying period usually associated when acquiring a new type of investment.
This modest allocation to estate planning solutions meant that the couple were only giving up access to around £400,000 of their assets, while solving the vast majority of the potential inheritance tax problem from the sale of their business. Capital was set aside for future generations, but without compromising their standard of living or giving too much away too soon.
It’s important to bear in mind that tax rules can change and their effects depend on individual circumstances which can also change.
The clients were delighted with their final plan. The couple gained access to the returns they needed, with a balance between readily available cash and investments, (with the latter giving them the potential for inflation protection over the long term). They were able to plan for the majority of the inheritance tax problems and all of their assets are diversified from both an investment risk and taxation perspective.
As for all our Wealth Management clients, Wealth Managers and Wealth Planners are on hand to review plans and revise it where necessary, with Richard and David keeping in regular contact with the clients and also their wider family. Please note that tax rules and legislation is liable to change and their effects depend on individual circumstances, it is therefore key that clients seek independent advice.
We were able to achieve this all in one place, by drawing on our banking, cash management, wealth planning and investment expertise. Together Richard and David helped draw together these various experts, including the client’s professional tax adviser, providing one point of contact, keeping the couple informed at each stage of the process and managing their expectations.
This is an example of our integrated, long-term approach. We have already started to build a relationship with the next generation to help ensure that wealth, once created, can trickle efficiently from one generation to the next while ensuring their short, medium and long term needs are met.
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Things to consider
The value of investments can fall as well as rise. You may get back less than you originally invested.
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