Mary was referred to us by a solicitor in 2012 following the death of her husband, David, the previous year. David had always taken care of the family finances and Mary was now a little stressed as the burden had fallen on her. While she wanted to take an interest in her finances, she did not want to spend her retirement managing the investments on a day-to-day basis.

The Gould Financial Planning wealth preservation team, led by Simon Gould, discussed Mary’s current spending requirements and expected expenditure, and considered how her lifestyle may change and the things she had dreamed of doing in retirement. We also discussed her thoughts with regard to her family and the issue of care, if and when she was unable to look after herself fully.

From this we came up with an income requirement for the day-to-day necessities of life, a budget for Mary’s dreams and aspirations, and a safety margin. The initial budgets were:

(i) Necessities (bills, food, etc.) £15,000 per annum
(ii) Travel, hobbies, short breaks £25,000 per annum
(iii) Safety margin £10,000 per annum

Each of these budgets would increase each year in line with inflation. But, as Mary became less active this level of income is unlikely to be required.

Mary did not want her sons to be burdened financially or physically with looking after her in old age, so a residential care facility (of her choice) was a distinct probability at some stage. Residential care costs of £50,000 per annum were anticipated, which was around 40% higher than the average cost of residential care in south Wales at the time.

Mary’s pension income after tax of £35,000 was expected to rise each year in line with inflation, leaving her with a shortfall of £15,000 per annum to meet her budgeted needs. As a higher rate tax payer, her income tax liability was in the region of £11,000 when her savings and investment income were added together.

Her assets totalled approximately £1.7 million including her house of £350,000. On her death the inheritance tax liability was in the region £400,000.

Mary was in good health and the average life expectancy of someone of her age in 2011 was 23 years, although in our calculations to err on the side of caution, we estimated that she would live 10 years longer than the average of someone her age.

Following discussions on investment risk we identified surplus capital in the region of £300,000 that we were comfortable giving away without her future expenditure requirements being threatened.

Our recommendations were accepted and Mary:
• Gifted £125,000 to each of her sons to help them buy their first properties.
• Gifted £5,000 to a pension arrangement for each of her sons; this was identified as surplus income over her expenditure.
• Invested £100,000 into a managed portfolio that qualified for Business Property Relief.
• Invested £35,000 into an Enterprise Investment Scheme (EIS).
• Investments were also simplified to a more manageable number and investment was managed via ISAs to ensure no future liability to higher rate income tax.

These actions generated £13,500 of income tax relief, and reduced the inheritance tax liability by £4,000 immediately, a further £54,000 after 2 years and a further £100,000 after 7 years.

Annual reviews were scheduled for every February and to date the following advice has been acted upon:

• February 2013 – Mary did not spend at the anticipated level; in fact her expenditure was in the region of £25,000. She, therefore, gifted a further £5,000 to each of her sons’ pensions. As this was surplus income it immediately fell outside of her estate for inheritance tax purposes saving £4,000 in inheritance tax, and the pensions received a further £2,500 of income tax relief.
• February 2014 expenditure remained at approximately £25,000 so a further £5,000 was gifted to each of her sons’ pensions. A further £50,000 from maturing Fixed Rate Savings Bonds was invested into the managed portfolio made up of shares that qualified for Business Property Relief. Finally, Mary gifted £11,500 to each of her sons to be invested into equity ISAs.

The current total income tax savings are in the region of £18,500, inheritance tax savings of £66,000 increasing to £86,000 on her surviving until February 2016, £186,000 on survival to February 2019, and a final total saving of £195,200 by February 2021.