FINANCIAL MAKEOVER: Staying on track at the end of the line

Ashley Butterfield, 57, and his wife, Jane, 47, run tours around India by rail in a specially converted wooden carriage. The business, Butterfield's Indian Railway Tours, is due to close next year after 22 years: Indian railways are modernising and becoming increasingly reluctant to hitch up the Butterfields' carriage.

The couple own their flat in southwest London and also own two other flats that are rented out. Each is worth around pounds 120,000. One of the rented flats still has a pounds 10,000 mortgage outstanding, which is due to be paid off next year with a maturing endowment policy from General Accident. The Butterfields have around pounds 110,000 in savings: pounds 18,000 in tax-free Tessas with Birmingham Midshires building society, pounds 40,000 in premium bonds, pounds 30,000 in a deposit account required as backing for the holiday company, pounds 5,000 in a current account and pounds 20,000 in a building society.

Ashley also has pounds 50,000 in various pension funds and adds a further pounds 500 a year.

The business has produced profits averaging pounds 30,000 a year for the past six years, but there is an estimated pounds 14,000 income tax bill due when it stops trading next year.

The Butterfields have no children or dependent relatives. They want to know how best to run down their assets as they get older while ensuring they maintain their standard of living, costing pounds 15,000 a year, and do not want to leave any property or money at death. They also want to give a set pounds 10,000 a year to an Indian charity.

What a financial adviser recommends:

The Butterfields' assets are such that they have little reason to worry about being able to maintain their standard of living.

While they plan to pack in the tour business, they should hang on to their investment flats. These presently produce pounds 19,000 a year, or pounds 15,000 after agent costs, maintenance and insurance. If the Butterfields put their personal tax allowances against this rental income, they could still walk away with around pounds 13,700 a year net. The rents should keep pace with inflation and should be fairly safe from any downturn in the property market.

That said, the couple do need to remain aware of the potential pain of managing the properties (overcome in the past by using reputable agents), as well as the possibility of loss of income if the properties should become unlettable and/or if new Labour were to bump up tax on rental income. If the Butterfields did decide or need to sell a property in the future then it would be tax-efficient for this to be their present home, as profits on this, as their "principal place of residence" would be free of capital gains tax (CGT). They could either move into one of the investment flats (profits on which are subject to capital gains tax so long as it is not their place of residence) or even trade down.

Ashley has not put as much in his pension fund as he could have over the years. Under "carry back" and "carry forward" pension rules it may be possible to top up his pension plan by as much as pounds 50,000 when the business stops trading. By putting this money in his pension plan Ashley would in effect avoid paying much of the expected pounds 14,000 income tax bill - the tax relief on the investment would cancel out the bill. Once invested, the money would also grow tax-free and, when cashed in, a quarter could be taken as a tax-free lump sum.

Part of this big pension investment can come from the maturing endowment policy, which should be worth at least pounds 25,000. If the mortgage lender will allow, the Butterfields should keep their pounds 10,000 mortgage, so that the interest can be offset against the before-tax rental income. Given that the Butterfields are older they should beware of direct exposure to the ups and downs of the stock market. Instead they should choose "with-profits" pension funds and those with guarantees.

The pounds 40,000 of premium bonds the Butterfields presently have are not an appropriate investment given that the couple want a guaranteed and even flow of income. Most, or all, should be sold.

Along with the pounds 30,000 no longer needed to back the tour business, the Butterfields will still have a portfolio that is unnecessarily flush with cash. They could leave pounds 25,000 in a range of societies in the hope of windfalls. Then they should look at tax-free PEPs. The couple can put a total of pounds 12,000 into general PEPs this tax year, though that is still likely to leave more than pounds 60,000.

The Butterfields have no desire to manage their own investment portfolio. With this in mind they could consider a unit trust management service. It would be possible to set up a regular withdrawal facility to create an income paid in part from the sale of units. This money could be used both to fund the pounds 10,000 that is to go to charity and to bridge the shortfall between the rental income and the required inflation-proofed pounds 15,000.

Assuming the Butterfields draw pounds 3,000 a quarter from the PEPs and unit trust service, and that the funds meanwhile grow by an average of 7.5 per cent a year, then this money would run out after eight years. By that time, when Ashley is 65 and also due a reduced state pension, the pension funds should have grown substantially allowing them to be cashed in to replace the PEP and unit trust income.

q Ashley and Jane Butterfield were talking to Stephen Dight, managing director of Grosvenor Financial Services, which is based in Henley-on- Thames and is a member of The Financial Options Group, a network of independent financial advisers.

If you would like to be considered for a financial makeover for publication, write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL. Fax: 0171-293 2096 or 2098; e-mail: s.lodge@independent.co.uk. Please include details of your current financial situation, a daytime telephone number, and state why you think you need a makeover.

Start your day with The Independent, sign up for daily news emails
Suggested Topics
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
Up and away: rates will rise but your mortgage won't escape its moorings with a long-term fix

Is a 10 year mortgage deal a fix too far?

A cut-price deal for a decade-long home loan - where's the problem? Only, says Simon Read, that circumstances can change and it won't be easy to get out
In a surprise move the Tories have decided against putting a career politician into the job. Instead they’ve handed the responsibility to campaigner Ros Altmann

New pensions minister has massive job on her hands

The Tories have appointed campaigner Ros Altmann to the post

Promises, promises: David Cameron talks to staff at Asda's head office in Leeds today

General Election 2015: How you vote next week could affect your finances

Rival party pledges could shrink your savings or grow your nest egg
Logos for the 'Big Six'; energy companies (top row from left) British Gas, EDF, RWE npower, (bottom row from left) SSE, E.ON and ScottishPower

Winter heating underpayment brings summer pain

One reader’s monthly direct debit charge has been increased by 62 per cent

Almost 15,000 people died last winter through living in cold homes that they couldn’t afford to heat

Social tenants locked into energy tariff for 40 years

Many Londoners who live in social housing estates are not allowed to switch because their landlord has ‘locked’ them in to buying from one supplier

Will your credit card rewards be scrapped following new EU rules on charges?

Providers are unhappy with new EU rules - but ultimately it is customers who will have to foot the bill
There remain more than a million unclaimed Premium Bond prizes worth collectively around £48m

Have you won £1m in the May Premium Bonds draw?

More than £60m was paid out to more than 2 million prizewinners this month

The 0 per cent introductory deals that credit cards offer are one of the most odious tricks

Beware credit card firms’ odious tricks

Why can’t we just have open and honest charges, without all the cross-subsiding?

The pound’s recent strength against the euro could be hit by economic uncertainty under a new government

How planning can make your travel cash go further

With the pound at a high against the euro, it pays to buy now before uncertainty post-election

Put the phone down on the coldcallers who see pension liberation as an opportunity to liberate your pension from you

Pension freedoms: How to deal with cold calls from scammers

Sean O'Grady offers advice on keeping your money safe
Switching to a better bank account is much easier than it used to be

More people are switching current accounts – but what do the figures mean?

Experts disagree about the 7% increase over the past year

The chance of getting what appears to be free money can be hugely attractive, especially to first-time buyers who can be fooled into thinking it’s extra cash to buy the essential new items they need for their dream home.

Beware the boom in cashback mortgage deals

Too many mortgages are being sold with misleading gimmicks

The firm’s revenues slumped by a third to £217 million in a disastrous 2014

Wonga results could get even worse this year, chief admits

The firm’s revenues slumped by a third to £217 million in 2014

The cost of a buildings policy has dropped by 10.1 per cent over the year, with the cost of a contents policy falling by 8.2 per cent

Simon Read: Mild winter cuts the cost of home insurance

The average quote for a buildings and contents policy has fallen by 3.6 per cent

Don't count your retirement money yet: employers will stop receiving a pension rebate next year and their staff may lose out

Defined-benefit pension schemes: Rebate change in 2016 may leave you out of pocket

Employees in defined-benefit schemes are held up as the lucky ones, but the state pension scheme will be overhauled in April 2016
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Software Developer / C# Developer

    £40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

    Neil Pavier: Management Accountant

    £45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

    Sheridan Maine: Commercial Accountant

    £45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

    Laura Norton: Project Accountant

    £50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

    Day In a Page

    Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

    Sun, sex and an anthropological study

    One academic’s summer of hell in Magaluf
    From Shakespeare to Rising Damp... to Vicious

    Frances de la Tour's 50-year triumph

    'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
    'That Whitsun, I was late getting away...'

    Ian McMillan on the Whitsun Weddings

    This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
    Kathryn Williams explores the works and influences of Sylvia Plath in a new light

    Songs from the bell jar

    Kathryn Williams explores the works and influences of Sylvia Plath
    How one man's day in high heels showed him that Cannes must change its 'no flats' policy

    One man's day in high heels

    ...showed him that Cannes must change its 'flats' policy
    Is a quiet crusade to reform executive pay bearing fruit?

    Is a quiet crusade to reform executive pay bearing fruit?

    Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
    The King David Hotel gives precious work to Palestinians - unless peace talks are on

    King David Hotel: Palestinians not included

    The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
    More people moving from Australia to New Zealand than in the other direction for first time in 24 years

    End of the Aussie brain drain

    More people moving from Australia to New Zealand than in the other direction for first time in 24 years
    Meditation is touted as a cure for mental instability but can it actually be bad for you?

    Can meditation be bad for you?

    Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
    Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

    Australia's first-ever Eurovision entrant

    Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
    Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

    Laughter, but no tears, as Letterman takes his bow after 33 years

    Veteran talkshow host steps down to plaudits from four presidents
    Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

    Hozier's 'blasphemous' song takes Novello award

    Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
    Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

    Join the tequila gold rush

    The spirit has gone from a cheap shot to a multi-billion pound product
    12 best statement wallpapers

    12 best statement wallpapers

    Make an impact and transform a room with a conversation-starting pattern
    Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

    Paul Scholes column

    Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?