Maximising wealth and structuring for the future – a case study

Seven years ago, we were approached by Mr and Mrs Thompson (both 55) just as they were selling their business. One of their lawyers had recommended us to them, and they came seeking guidance in securing their financial well-being.



Please note that whilst the following case study is based on real IQ clients, their names and specific circumstances have been altered to protect client confidentiality. IQ case studies are intended to provide examples of the services we have provided to previous clients and may not be directly applicable to your specific situation. We recommend speaking with one of our advisers for personalised guidance and advice tailored to your unique needs and goals.

Clients’ vision and objectives

The Thompson’s financial goals were clear and reasonable:

  • Pay off their mortgage.
  • Establish a sustainable income stream for retirement.
  • Maintain the value of their investments as much as possible whilst optimising the tax efficiencies available to them.
  • Enable their children to enter the property market.

Our approach

Our initial step involved an analysis of their financial situation. We reviewed their expenditure, anticipated secured income and wider asset base thus establishing what the clients would need to draw from their investments to meet their anticipated future expenditure. Simultaneously, we determined the scope they had to increase their discretionary spending without taking the risk of them falling short of their goal of maintaining their investment value over the long run.

We created a comprehensive cash flow model and stress-tested various scenarios – for example ‘what would be the implication on their finances if either of the Thompsons required a carer?’ and ‘how would a stock market crash in the near future affect their spending?’.

Generally speaking, we aim to provide assurance that a given client is taking the right amount of investment risk to meet their retirement income aspirations. We use tools such as cash flow modelling to help us make informed decisions on this basis, but ultimately we rely on our own experience and expertise.

Structuring their assets

Our immediate advice was to clear their debt, and make use of available tax allowances whilst still available. Once the mortgage was cleared, and anticipating the imminent sale of their business, we advised making substantial pension contributions prior to the sale in order to maximise the associated tax benefits (saving tens of thousands in corporation and income tax).

Based on our modelling, it was evident that accessing the pension fund during their lifetime would not be necessary, thus establishing it as an efficient inheritance tax (IHT) management tool instead.

Leveraging proceeds from the business sale, we consistently funded their Individual Savings Accounts (ISAs), and ensured a substantial investment into a joint General Investment Account (GIA). This ensured that they could fund their ISAs each year from their GIAs, utilising their available capital gains tax allowances, rather than using cash.

Ultimately, over the following 7 years – they moved £280,000 from a taxable GIA account into a tax-free ISA environment.

With the residual funds from the business sale, we set up an Offshore Investment Bond. This offered the flexibility to withdraw up to 5% of the initial investment every year with no immediate tax liability. The primary reason for this was to defer any tax liability further down the road, offering them control over when and how the tax is paid. This allowed their capital to grow without the drag of ongoing income, dividend and capital gains tax.

Utilising the structure of the offshore bond, ISAs and pension ultimately meant they have paid significantly less tax than initially anticipated.

Investing their assets

We identified that in addition to the tax-efficient wrappers outlined above, a disciplined and structured approach was needed for their investments. To mitigate the damaging impact that market volatility can have on portfolio values when drawing an income from investments, we split their investments into three pots - designated by time horizons - to meet their short, medium and long term income requirements.

The first pot consisted of cash totalling two years’ worth of required income, utilising the best rates available in fixed term deposit accounts. The second, held an additional three years' of income which was placed in lower-risk, high-yielding funds, designed to generate an ongoing income to supplement their cash reserves. This meant that if markets fell dramatically in the first few years of retirement, they would not be forced to sell any of their investments, providing short term certainty of income.

The remaining capital was then allocated to higher-risk growth assets, utilising a high equity content to maximise potential growth. The intention for this capital was to grow over a longer time horizon than the other two pots.

Ongoing maintenance

This approach was subjected to annual reviews and adjustments. It sought to ensure the clients’ financial stability, with provisions for unforeseen expenses and opportunities for gifting. The strategy also focused on ensuring tax efficiency and minimal liabilities.

By implementing the plan, we managed to not only fulfil the clients’ immediate objectives but also fortify their long-term financial health and stability. So much so that we were able to give them the confidence needed to gift significant sums to their children without fear of running out of money in the future.

To date, the Thompsons have had their income requirements met, paid minimal tax and have preserved the nominal value of their investments. Having a robust plan in place has provided them with clarity and peace of mind.


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