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.
23 January 2015 08:00 PM
I had dinner with the pensions minister Steve Webb this week. There was a wide-ranging discussion about the new pensions freedoms starting in April, and changes to the state pension. Crucially, I also got to ask Mr Webb whether he had any plans to have another look at the injustice that is frozen pensions.
23 January 2015 08:00 PM
23 January 2015 08:00 PM
While the health of the economy is not insignificant, Mark Dampier finds it incredibly unpredictable in terms of its impact on the stock market
21 January 2015 12:32 PM
A new free app is aimed at the three-fifths of Brits who have never switched supplier
20 January 2015 09:34 AM
Regulator’s investigation into the market found that around £160bn was held in easy access savings accounts that pay interest lower or equal to BoE base rate
17 January 2015 12:00 AM
Simon Read: Information is power. And it's in the wrong hands when people are cold-called by companies that know they're in debt
17 January 2015 12:00 AM
In debt? You're likely to be targeted by unscrupulous companies that hope to profit from your misfortune. They may try to pretend to be your friend by offering what they call "help" – but almost certainly that help will come with a cost and leave you worse off than you were before they got in touch.
17 January 2015 12:00 AM
In less than three months' time radical changes to pensions will take effect, providing investors with more freedom. Yet for those who prefer to make their own investment decisions, the choice of funds available is overwhelming. And an income drawdown account is also not particularly easy to manage.
15 January 2015 12:23 PM
The minimum amount for which you can be forced into bankruptcy is being raised from £750 to £5,000
14 January 2015 08:55 AM
A shock report reveals that fuel poverty is affecting desperate families – and their children
14 January 2015 08:59 AM
Most people are too confused to know how to use their pensions for a secure income
10 January 2015 12:00 AM
Simon Read: Inflation is riding the slow train. So why have we been given a one-way ticket to travel on the fares express?
10 January 2015 12:00 AM
I struck a chord with many of you when I wrote a piece earlier this week about rising train fares. It seems there is an army of travellers who feel they've been ripped off by increased transport costs.
10 tips for taking out a personal loan
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Donald MacInnes: My wasted hours in the retail deserts of Dixons-Carphone
Pension firms must ask consumers more questions, says City Watchdog
How to start your own internet business
- 1 The BBC has just done more to eradicate ‘terrorism’ than all our wars since 9/11
- 2 Dog thinks owner is drowning in lake, dives in and tries to pull him out
- 4 Chilling drone footage captures Auschwitz ahead of 70th anniversary of liberation
- 5 Phil Neville backtracks on Tomas Rosicky 'I'd smash him' comments from Match of the Day 2
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
Islamic history is full of free thinkers - but recent attempts to suppress critical thought are verging on the absurd
Leaked documents show Ukip leaders approve NHS privatisation once it becomes more 'acceptable to the electorate'
iJobs Money & Business
£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...
£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...
£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village