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The Business Owner

The Client

• James and Patricia co-own a successful business, based in Bedfordshire. They are used to a very comfortable lifestyle and enjoy all the benefits which come with being in charge of a successful firm.

• They are now both in their early 60s and are keen to start the process of winding down their business activities, so that they can spend more time enjoying the fruits of their labour, doing what they like to do and making up for all those years of sacrifice and commitment.

• They are concerned about life after they have sold their business and whether they will be able to support the lifestyle they have become accustomed to.

• James and Patricia have both made significant contributions to their Self-Invested Personal Pensions (SIPPs) over the last few years but have only ever invested in cash, because they felt they did not understand investments.

• Their accountant has advised them that they will have a Capital Gains Tax (CGT) bill of £1m upon the sale of the business and they are concerned about the amount of Inheritance Tax (IHT) their estate will be liable to.

• Until now, they have concentrated on managing the financial affairs of the business, rather than their personal financial affairs. They agreed with their accountant that more comprehensive financial planning and wealth management is now required, so their accountant referred them to Chamberlyns for an initial meeting.

The Challenges

• To understand whether James and Patricia will be able to maintain their lifestyle once they have sold the business.
• To determine James and Patricia's feelings on investment risk, to help them understand investments in their particular context and develop a more appropriate investment strategy for their SIPPs, rather than the current ineffective all-cash strategy.
• Consider ways in which their CGT bill could be minimised or eradicated.
• Determine the extent of their estate's IHT liability and how this could be minimised or eradicated.

The Actions

• Chamberlyns prepared a financial plan for James and Patricia, which showed that with the correct ongoing financial, investment and tax planning, they could comfortably maintain their current lifestyle.
• We asked James and Patricia to complete a psychometric risk-profiling questionnaire, which we then analysed in order to understand their feelings towards investment risk. Following further discussions, it transpired that they were both comfortable with quite a high level of investment risk.
• We collated all of James and Patricia's relevant personal and financial information to determine the investment return they needed their pensions and investments to deliver in order to achieve their objectives. It transpired that they could take a lower risk with their investments than they were actually both comfortable with, so this is what we recommended for the bulk of their portfolio.
• In respect of their CGT and IHT liabilities, we established specialist 'Enterprise Investment Scheme' (EIS) investments totalling £1m, which were of a higher risk profile, but firmly within their tolerances.
• A further IHT saving plan was to arrange for immediate gifts of capital totalling £300,000 to be made to their children and grandchildren from other personal assets, rather than waiting until their deaths, as they had originally planned. This gave James and Patricia great personal satisfaction.

The Results

• James and Patricia are happy and relaxed about their financial future and are looking forward to selling up.
• Their pension investments are structured in a much more appropriate and diversified way, whilst maintaining a low risk profile and utilising low cost, institutional investment funds.
• Establishing the EIS investments enabled the £1m capital gain to be deferred indefinitely, preventing an immediate tax bill of £180,000.
• In addition, providing James and Patricia live for a further 2 years and hold on to the shares, this strategy will remove the £1m from the Inheritance Tax net, saving £400,000 in tax, which can then be used for their family's benefit and enjoyment, rather than the Chancellor's.
• Providing they survive for 7 years, the strategy of making gifts to their children and grandchildren immediately, instead of under their wills as originally planned, will have removed an additional £300,000 from the Inheritance Tax net, saving a further £120,000 in tax.

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