The Agerbaks want to buy a home and ensure a decent income. Adviser Paul Gauntlett tells how
Saturday 12 April 1997
r The purchase of a home for their retirement costing, say, pounds 100,000.
r A retirement income, net of tax, of just over pounds 15,000 a year in today's terms.
r To use reinvestment relief to defer part of the chargeable capital gain arising from their Cheltenham & Gloucester "windfall" in August 1995.
r To keep their investments on track following on from the advice they received in 1995, particularly if there proves to be a bumpy ride ahead on the stock market.
Tim and Linda have a portfolio of deposits, National Savings, traded endowment policies, gilts unit trusts and PEPs. These aregeared to growth rather than income. The likely income shortfall needs to be more accurately established between Tim's age 60 and 65 and thereafter.
Between now and 1999, when Tim is 60, the PEPs can be transferred into equity income funds with a view to providing rising tax-free income with, hopefully, protection of capital against inflation.
With the need to buy a retirement home for pounds 100,000 in mind Tim and Linda have just realised pounds 28,000 from one of their equity linked investments and have over pounds 100,000 in building society deposits. They have purchased three traded endowment policies (costing about pounds 63,000) and set aside pounds 40,000 of the building society cash to cover the purchase of a retirement home. After allowing for this purchase, Tim and Linda have about pounds 170,000 invested, ample to provide the extra income required. even at the relatively low initial yield available from a balanced equity portfolio. They need not therefore feel threatened by short-term stock market volatility.
Of the pounds 100,000 on building society deposit, pounds 40,000 will need to be retained in cash since the house purchase is likely in the next two years. This can also serve as an emergency reserve in the interim. The balance can be used to start a Tessa for Tim, make the 1997/98 PEP investments and take advantage of any opportunities which may arise - particularly if a fall in stock market valuations provides a good window in which to invest for long-term income and growth.
Their current annual expenditure exceeds pounds 21,000. However, once Tim retires, and they move into their new home, they will save over pounds 6,000 a year in rent and pension contributions. This indicates a required net income of pounds 15,000 per annum or so. An updated forecast of likely pensions is now needed.
At the time of the last review these were estimated as Tim pounds 11,915 and Linda pounds 1,925 per annum. After tax, this indicates a joint pension income of about pounds 12,400. Further income of pounds 2,500- pounds 3,000 per annum will need to be generated from investments and this will need to be protected against inflation as far as possible.
Even though he has taught overseas from time to time he will undoubtedly have accrued some state pension entitlement in the UK, payable from the age of 65. Tim should immediately complete and send form BR19 to the Benefits Agency to request a retirement pension forecast. It may well be the case that the Agerbaks' initial objective from their investments will be to provide a bridging income until Tim's state pension starts at age 65, whereupon things can be reviewed again.
Linda is receiving no retirement pension but should check whether she has any entitlement. Meanwhile, Tim should continue as he is now, paying maximum additional voluntary contributions (AVCs) to tax-efficiently boost his prospective occupational pension.
Tim and Linda's joint account with the Cheltenham & Gloucester produced a windfall in excess of their annual capital gains tax exemptions and they paid over pounds 1,700 in CGT. They are waiting to see what indexation relief may be available following Clark Whitehill's successful challenge to the Inland Revenue (The Independent, 5 February 1997).
Meanwhile though, as Quakers, the couple have a strong desire to see that their investments are ethically sound and were delighted to be able to make a small investment in a wind farm co-operative in Cumbria known as Baywind. This qualifies under the Enterprise Investment Scheme (EIS) for income tax relief at 20 per cent and they can also elect to defer part of their C&G capital gain by reinvesting under this EIS.
Such an investment would normally be considered unduly risky for a couple like the Agerbaks but they have taken comfort from Baywind's 15-year contract under the Government's non-fossil fuel obligation (NFFO). Under EIS rules it is possible to defer capital gains tax where the chargeable capital gain is reinvested (in part or whole) into qualifying shares within three years of the date of the original gain (which must be after 29 November 1994). They should however bear in mind that CGT is deferred rather than avoided.
Consideration ought to be given to the inheritance tax (IHT) implications of the current wills, which are wholly in favour of each other. This is entirely understandable but not very tax-efficient as it will result in a tax liability on the last death which could be avoided if use is made of the "nil-rate band" of IHT on each death. This involves leaving some assets on the first death to beneficiaries other than the surviving spouse.
They may well feel uncomfortable with this since this course of action could leave the surviving spouse short of income. The answer may be to leave assets under a discretionary trust from which the remaining spouse could potentially benefit.
Finally, thought should be given to how the cost of long-term care may be met, should this be required. Both regular premium and single premium insurance arrangements are widely available.
Paul Gauntlett can be contacted at IFA Moors, Marr Bradley on 01908-66228.
03 July 2015 08:30 PM
07 July 2015 12:10 AM
Unscrupulous crooks prey on older people to trick them out of their savings
03 July 2015 08:30 PM
Andrew Hagger reveals how to get the most from your plastic
03 July 2015 08:30 PM
One reader purchased the Post Office Travel Money Plus Card for a motoring holiday but discovered it can't be used at self-service petrol stations or autoroute toll booths
26 June 2015 10:30 PM
30 June 2015 05:56 PM
UK consumer groups complained that British holidaymakers face another two years of mobile phone misery before the law comes into effect
26 June 2015 10:30 PM
The P2P industry must do more to shake off an unjustified image of being too complex and risky for the everyday saver, says Andrew Hagger
26 June 2015 10:30 PM
Six of the energy company's customer have cause to blow a fuse this week
26 June 2015 10:30 PM
Derek's portfolio is currently suffering because of his failure to be more ruthless
25 June 2015 08:01 AM
One debtor was given a repayment plan that would have taken 125 years to repay
Challengers are smashing the traditional high street banks when it comes to offering decent savings rates
23 June 2015 11:46 AM
Ignore the new breed of savings institutions and you'll lose interest
NatWest pledged five years ago it wouldn't close the last bank in town. Now villagers have been told the branch shuts in September
23 June 2015 05:02 PM
When the last bank closes, local shops quickly go out of business
19 June 2015 10:00 PM
19 June 2015 10:00 PM
Questions of Cash: The paperwork wasn't right so I was left high and dry with a broken washing machine
19 June 2015 11:00 PM
A reader encountered a problem with a Currys washer/dryer care plan
- 1 Florida man sentenced to two-and-a-half years for having sex on the beach in front of a child
- 2 Autistic teenager beaten up by bullies makes them watch 20-minute video about autism
- 3 Nick Kyrgios calls former Olympian Dawn Fraser a 'blatant racist' after she tells Wimbledon star to 'go back where their parents came from'
- 4 World learns of app that shows you who unfriended you on Facebook, app promptly crashes
- 5 Chris Moyles reportedly set to make radio comeback with new breakfast show on XFM
More Britons believe that multiculturalism makes the country worse - not better, says poll
Osborne to cap family benefits at £23,000 – announced ahead of his post-election Budget
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Sickness and disability benefits could be reduced by £30 a week as part of £12bn welfare cuts
Greece debt crisis: Angela Merkel and Francois Hollande issue Athens with 24-hour ultimatum to avoid crashing out of the euro
Greece crisis: Referendum exposes a gaping hole at the heart of the European Union – its lack of genuine legitimacy
iJobs Money & Business
£40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...
competitive: SThree: Are you passionate about sales?Do you have a keen interes...
£17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
Day In a Page
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.