Lydia (50) and Jeff (52) ran a medical science technology business which attracted the attention of a very large Pharmaceutical business who made a substantial cash offer. This meant they could potentially have financial security for the rest of their lives.
They are business partners only and have three children between them. Lydia has two children. One is a financially independent adult and the other (Samantha) is just starting university. Jeff has one child who is in her mid twenties and financially independent too.
How the sale was structured would of course have tax implications for them and also once the value of their shares in the company were realised they would immediately be exposed to inheritance tax.
Luckily they discussed this with their professional advisers which included their commercial lawyer and accountants before any contracts were agreed.
Together a plan was drafted to include pre and post-sale planning issues.
They benefited from Entrepreneurs Relief which meant that CGT was charged at a rate of 10% on the whole value of the sale as it was within their cumulative lifetime gains of £10m each.
Once the proceeds of the sale were received some immediate planning was required.
We helped them to structure their assets to take advantage of tax allowances and reliefs which allowed them to shelter most of their income from Income Tax at higher rates and expose just enough of their assets to capital gains tax to utilise their CGT allowance each year.
The majority of their capital was invested into tax efficient investment wrappers that allowed them to grow without any immediate income tax or CGT for future use if and when needed. At the same time specialist and HMRC approved trusts were used to limit and reduce any inheritance tax liability whilst allowing access to the original capital.
Segments of the investment wrappers could be assigned to their children and in fact this would be particularly useful for Samantha to help with university costs. Any gains would be assessed against her own tax allowance which means that she can take money tax free provided all or most of her basic rate tax allowance is available.
During the years Lydia and Jeff had made some pension provision, however this was not optimised. We calculated the maximum allowable contributions along with the carrying forward of any previously unused allowances to obtain tax relief.
Using a combination of all the available tax efficient investment wrappers it was possible to give them both a substantial amount of ‘income’ from their investments with a much reduced tax charge and mitigate the impact of inheritance tax on their respective estates now and in the future.
The case studies are based on real scenarios with specific client details removed to protect their identities.