Learning Center
Plans & pricing Sign in
Sign Out

Retiring soon Retiring soon


Retiring soon Retiring soon

More Info
Autumn 2008 -Retirement Guide

                                                           Retiring soon?
                                        Increasing the NHSPS
                                          Tax Free Lump Sum
                                          s from 1 April 2008 there is a               Who might this new option benefit?
 This Retirement Guide
 is to help you with               A      significant change that affects those
                                          retiring and electing to take their
                                                                                       This new option may be attractive to
                                                                                       the following:

 understanding:                    pension and lump sum due as a result of                   Those who have a requirement to pay
                                                                                             off a mortgage or other large debt and
 1 Yourtax free for taking more
   as            cash from the
                                   membership of the NHS Pension Scheme.
                                   Doctors and dentists can now apply to take                intend to use the extra tax free lump
    NHS Pension Scheme.                                                                      sum to this end.
                                   a substantially increased tax free lump sum

    How to get the best from
 2  annuities     on    personal   in return for giving up a proportion of the
                                                                                             Those who want to buy a property and
                                                                                             will use the additional lump sum option
    pension funds.                 index linked pension payable.
                                                                                             to help finance it.

    On what the benefits
 3  and disadvantages are on
                                   Previously members automatically received a
                                   lump sum that was three times the pension
                                                                                             To help finance a cherished retirement
                                                                                             aim – for example a boat on which to
    Unsecured Pensions (USP)
    otherwise known as pension     payable. Now you can apply to take an                     spend more enjoyable retirement days!
    draw down if you have
    significant pension funds
                                   increased lump sum that is up to 25% of the
                                   total pension fund value                            4     Those who prefer to take the extra lump
                                                                                             sum and invest it tax efficiently to
    outside of the NHSPS.                                                                    otherwise avoid paying higher rate tax
    Why you should build           What do you give up to increase the tax-                  on the pension in retirement.
    a diversified investment       free lump sum?                                            Those who would rather have as much
    portfolio.                     Giving up part of the pension for an increased            control as is possible over their capital.

    Steps open to you to use to
 5  mitigate inheritance tax.
                                   lump sum is known as commutation. To
                                   increase the lump sum you give up £1 of
                                                                                             Those whose family genes do not favour
                                                                                             a long period in retirement.
    The history and pedigree of
 6  DoctorsInvestDirect and our
                                   pension for every additional £12 of lump sum
                                   taken. The table gives an example.
                                                                                       Remember when applying to take an extra tax
    Managing Director, Keith                                                           free lump sum it is in effect the advance
    Taylor who has helped          There is complete flexibility in that a doctor or   payment of pension. Once spent it cannot be
    doctors and dentists since                                                         replaced unless other assets are in place from
                                   dentist can simply take the pension and lump
    the 70’s.                                                                          which income can be drawn.
                                   sum as delivered previously (the pension and
 Use our enquiry Form to ask
 us for help and guidance          lump sum that is three times the pension) or        If inflation remains low and you fully expect not
                                   any higher additional lump sum up to the            to live more than say 12 years past your
                                   maximum permitted (£117,852 in our                  retirement date (and if married the same for your
                                   example shown on page 7). The only                  spouse) then taking the extra lump sum could
                                   requirement is the higher lump sum required         be attractive.
 DOCTORSINVESTDIRECT               must be divisible by 12.                                                 Continued on page 7...

                      Important retirement information for doctors and dentists
                                                              Living Time vs
                                                                   or those who are about to retire the ability to see

                                                             F     exactly what’s ahead for the next ten years or so
                                                                   would indeed be valuable. This problem is particularly
                                                              acute when the time comes to decide on what it is best to
                                                              do with accumulated pension funds at retirement. The main
                                                              choices are twofold. Using the fund to purchase a
                                                              conventional annuity that once arranged is fixed for life and
                                                              cannot be changed later.

“Living Time’s plans             Alternatively the fund can be placed in an       Because the Fixed Term Annuity will provide a
                                 environment where an income is drawn direct      guaranteed maturity amount at the end of
are unique because they
                                 from the fund, which remains invested,           whatever term is selected, policyholders are
offer guarantees over both       without having to purchase an annuity at that    given “another bite of the cherry” at a later age
the capital and the income       time, commonly referred to as income             regarding their pension benefits. This is
                                 drawdown or pension fund withdrawal and          because the fund produced at maturity can be
during the term of the plan                                                       used to purchase benefits again, and these
                                 now USP.
and at maturity.”                                                                 benefits can more accurately fit in with
                                 Each of these approaches has elements that       circumstances and requirements at that time.
                                 make them suitable to different people at        Let’s look at some case studies opposite to
                                 different times but each of them also have       demonstrate how this can be a real advantage.
                                 disadvantages. Conventional annuity offers
                                 certainty but inflexibility whereas USP offers   In both cases a conventional annuity would
Many people roll their           flexibility but uncertainty with regard to the   not have met requirements closely enough
                                                                                  and would have been inflexible.
pension       funds       into   investment performance of the fund that is
                                 being used to provide the income.                Living Time’s plans are unique because they
a conventional lifetime
                                                                                  offer guarantees over both the capital and the
annuity far too early in their   The industry has responded to this dilemma
                                                                                  income during the term of the plan and at
                                 faced by many approaching retirement by
retirement and without                                                            maturity. At the outset the retirees know
                                 introducing plans that bridge this gap. It is
                                                                                  exactly how much income they will get during
sufficient guidance on the       called third way thinking and one new option
                                                                                  the term and the size of the final maturity
alternatives available. A key    that we rate as being very attractive is the
                                                                                  value, and also what will be returned should
                                 Living Time Plan from Living Time - a division
point all those retiring need                                                     they die during the term.
                                 of AIG.
to know is that the                                                               As with all major financial decisions proper
                                 The Living Time Plan provides a Fixed Term       independent financial advice is vital and the
guarantees and flexibility of    Annuity that offers a guaranteed income from     “Living Time Way” may not suit everybody but
third way thinking means         outset; a guaranteed maturity amount at the      plans like this can provide a welcome
                                 end of the term, and a choice of death           compromise between flexibility and certainty
there can be many real
                                 benefits to provide protection should the        in many cases. The potential benefits are
benefits to ‘road testing’       policyholder die before the end of the           certainly significant enough to warrant
their income solution before     selected term.                                   research when retirement time comes for you.
taking the final plunge into     Introducing a plan like this opens up a new      If you would like to find out more about
a conventional lifetime          avenue of flexibility for those who want         such options, call us, visit our website or
                                 to have a balance between certainty              return the enquiry form at the back of
annuity later in life.           and flexibility.                                 this Magazine.

      2      RetirementGuide
  Retirement at 60                                                       If, on the other hand, Mr Hilton used his £100,000 to purchase a
                                                                         Living Time 75 plan that paid benefits from now until he reaches
  Mr and Mrs Hilton are both in good health presently but there is a     age 75 the scenario would be different.
  family medical history of poor health in retirement years.             The income payable at recent market rates would be £5,841.36
  Consequently, Mr Hilton is concerned that his health is likely to      per annum or £486.78 per month before tax and there would still
  deteriorate early in retirement. He believes that because of this he
                                                                         be a 100% benefit for Mrs Hilton. However, the guaranteed
  may well qualify for an enhanced/impaired life annuity rate before
                                                                         maturity amount would be £77,270.58 at 75. This sum could be
  age 75. However because they are well now and he needs to draw
                                                                         used at maturity to purchase fresh annuity benefits again then and
  income now they do not presently qualify for impaired rates.
                                                                         these will reflect whatever requirements apply at that time. At
  The fund available to purchase benefits is £100,000. If he
                                                                         impaired/enhanced rates the guaranteed maturity sum could buy
  purchased a traditional annuity with no death benefit guarantee but
                                                                         an annuity of £6,567 per annum or £547.25 per month.
  with a 100% pension for Mrs Hilton, recent market rates show that
  the income Mr Hilton could expect would be £5,783.52 per annum,        In Mr Hilton’s case, if health deteriorates as expected then at that
  or £481.96 per month before tax. If he followed this route these       time the guaranteed maturity amount could be used to purchase
  terms would be fixed for the rest of his and his wife’s lives and      benefits that reflect his state of health at that time. With a
  could not be altered later, even if health deteriorates.               conventional annuity there would be no such opportunity.

  Still Working at 65                                                    When they reach age 70 the guaranteed maturity amount will be
                                                                         £127,463.62. At maturity this could provide a pension of £8,533.56
  Mr and Mrs Barker are still in full time employment at age 65 and      per annum or £711.13 per month before tax guaranteed for the
  so they do not need an income until they retire in five years’ time.   rest of their lives.
  However they do have a number of debts they would like to repay        Had they purchased a conventional annuity at age 65 they would
  now in order to reduce their outgoings.                                have received an income of £6,154.56 per annum or £512.8 per
                                                                         month before tax.
  Mr and Mrs Barker decide to take their tax-free lump sum from
  their pension funds by purchasing a Living Time Income Plan. Their     Deferring by way of the Living Time Plan means that they have
  fund after the cash sum has been taken is £100,000 and they use        been able to reduce their outgoings by reducing debt and receive
  this to purchase their plan for a five-year term to mature when they   a higher amount of income later, again with the opportunity to
  reach age 70.                                                          purchase benefits that reflect their circumstances then.

Understanding USP
“The USP option allows you to control the way your pension benefits are paid to you and enables you to retain
control of the underlying assets. You retain the option to purchase an annuity later at anytime with some or all
of your fund if you consider a guaranteed income to be required. Death benefits generally are better...”
      he ability to take benefits                 income or you might have to retire on a       joint life situation negating the need to

T     from     a   pension

an annuity has been with us
      without having to purchase
                                                  lower level of income than expected.

                                                  USP Allows Flexibility
                                                                                                have to buy a fixed joint life annuity. It
                                                                                                also enables the income to be varied
                                                                                                when other income or capital becomes
for several years now. Here
                                                  in Income                                     available – starting to receive your state
we address the benefits but
                                                                                                pension or other occupational pension
also highlight some of the risks                  As annuity rates have fallen, more and
                                                                                                benefits for instance.
and     issues   that   must   be                 more have entered USP rather than
considered before taking your                     buy an annuity given its perceived poor       Pension Commencement Lump Sum
retirement benefits.                              value for money. This is partly because       (tax free cash) is available from the
The main benefit of an Unsecured                  the legislation allows income from a          outset and you can decide as to how
Pension (USP - previously called                  USP to be drawn up to a maximum of
                                                                                                much or how little cash you wish to
                                                  120% of the equivalent single life
Income Drawdown) is the ability to                                                              take. The maximum amount is
                                                  annuity. Similarly there is no
defer the purchase of a conventional                                                            calculated as 25% of the funds being
                                                  requirement to take a minimum
lifetime annuity. The past decade has                                                           used to provide USP benefits. Once
                                                  income. This is very important as it
seen a significant fall in annuity rates as
                                                  allows the level of income to be varied       you have taken the tax free cash
lower rates of interest and longer life
                                                  for the current year and each                 amount you cannot then take more
expectancy have had an impact. In
                                                  subsequent year in order to meet the          from the fund if the plan value were to
general terms annuity rates have fallen
                                                  investor’s specific requirements.             increase. Similarly if you decide to take
around 40% over the past 10 years
which means that your pension fund                This offers the ability to match income       less than 25% of the fund value as
will either need to be 40% higher in              more closely to needs. The withdrawals        cash then you cannot return at a later
value to provide the same level of                can be sufficient to provide income in a      date and request the balance.

                                                                                                               RetirementGuide                  3
    Control over Investment
    of Assets
                                                  account. Using the USP you can defer
                                                  annuity purchase until you reach age
                                                  75. This means that annuity purchase
                                                                                                 a     Buy a conventional annuity in
                                                                                                       their own name; or

    With an Unsecured Personal Pension
    an investor retains control over the
                                                  can be deferred until rates are more
                                                  favourable and that the annuity                b     Continue to take an income
                                                                                                       within the drawdown contract
                                                                                                       until they reach age 75 following
    investment by selecting where to invest       purchased can, if necessary, be spread
                                                  over a long period of time ('Phased'                 which time they must purchase a
    the funds and also by switching
    between asset classes. Income can be          annuity purchase).                                   conventional annuity or change
    withdrawn from selected, individual                                                                from a USP to an ASP; or
                                                  You are not then tied to one particular

    asset classes with the opportunity to         rate and as circumstances change (for                Take the entire remaining fund as
    switch into annuities when appropriate.       example from joint life to single life               a lump sum, though this would
    This means that there is control over         because of death of your spouse) a                   be subject to a special tax charge
    the amount of risk taken at any one           more appropriate annuity can be                      of 35% (but would not fall
    time. It does however mean that a USP         purchased at the correct time.                       into your estate for Inheritance
    will need to be reviewed regularly to
                                                  Once an investor reaches 75, you will                Tax purposes).
    ensure that the investment does
    continue to match with risk profile and       be required to purchase an annuity or          If you die before you purchase a
    the need to deliver benefits.                 change the USP to an Alternatively             conventional annuity and the person to
                                                  Secured Pension (ASP). An ASP has a            whom you have elected to have the
    More recent and welcome development
                                                  maximum income withdrawal rate of              benefits paid is someone other than
    has seen the introduction of funds that
                                                  90% of the equivalent single life annuity      your spouse or Civil Partner, that
    protect against loss of fund value or
                                                  for a 75 year old, reviewed annually.          person must take the remaining
    guarantee a certain level of income.
                                                  The minimum income is 55% of the               fund as a lump sum, less the 35%
    Providers such as Hartford Life and Met
                                                  same single life annuity. There is             tax charge.
    Life are pioneering the use of these
                                                  however      some       major      issues
    funds that can take much of the anxiety                                                      If you choose a phased USP, your fund
    and risk out of choosing the USP route.       surrounding the tax treatment of the
                                                  remaining funds upon death and we              will be notionally split between `opened`
    The alternative route of buying a             strongly recommend that professional           segments and `closed` segments. The
    conventional annuity will mean that you       advice is sought if you are approaching        opened segments are those from
    have no choice or control once the            age 75.                                        which you are taking income and the
    investment decision is made. Your                                                            death benefits are as shown above.
    capital will effectively be passed to the     Death Benefits better                          The full value of the closed segments
    annuity provider who will then invest                                                        would be paid to your nominated
    this money as they see fit; you will          One of the major differences between
                                                                                                 beneficiary free of tax.
    however be guaranteed your specified          USP income and annuity income is the
    level of income.                              way that death benefits are paid.              When an annuity is purchased you will
                                                  Generally the position before age 75 is        have to select the level of death
    Annuity Purchase can                          much more attractive. If you die holding       benefits that would be paid. Once
                                                  a USP before you purchase a                    selected this choice cannot be
    be deferred                                   conventional annuity and the person to         changed even if your personal
    Making the decision to actually buy           whom you have elected to have the              circumstances were to change
    some form of annuity is always going to       benefits paid is your spouse or                significantly. Once any guarantees have
    be a difficult one with all of the various    Civil Partner, they will have three            expired all monies are lost to the
    considerations to be taken into               main choices:                                  annuity company.

    Unsecured Pension is not a risk free                                         investments and could quickly erode the value of your
                                                                                 USP plan.
    option for the following reasons:
    1     Annuity Rate movements cannot be predicted, If
          annuity rates were to fall further then your income may
                                                                          4      The level of USP income is periodically reviewed every
                                                                                 5th year and will recalculate the maximum amount of
                                                                                 income you can take for the following
          be affected when you come to purchase                                  5 years. If your fund has gone down in value and/or the
          your annuity.                                                          Government Actuary Department annuity rate being

    2     If you invest in a USP then a critical yield must be                   used to calculate the level of income has been
          calculated and taken into account. The critical yield is               reduced, then your income will come down.

          important as it qualifies how hard the invested assets                 Costs and charges are normally higher with a USP
          need to work in order to replicate the annuity that could              contract as the level of administration and provision of
          have been purchased at outset. If the assets held                      systems are greater compared to annuities.
          within the USP cannot grow at these rates then it might          In conclusion, the USP option allows you to control the
          be better to purchase an annuity immediately.                    way your pension benefits are paid to you and enables

    3     Investment risk and asset allocation are crucial to USP
          working correctly. Your income (if taken) is taken
          directly from your investment funds. If markets move
                                                                           you to retain control of the underlying assets. You
                                                                           retain the option to purchase an annuity later at
                                                                           anytime with some or all of your fund if you consider a
          against you this will reduce the value of your                   guaranteed income to be required.

      For help with advice on pension retirement options, call us, go to our website or return the enquiry form at the back of this Magazine

4      RetirementGuide
Diversify –
A must when
building an
“Advice should vary according to whether capital creation or preservation is the main aim. Taxation too is
important. Where possible all available tax shelters should be used provided the investment vehicles suit
the investor.”
  f you are looking at how best to deploy capital                  of one type of asset or one investment company. It also has

I before, at or post retirement, picture this scene in
  your mind’s eye.
You get into a lift and press the button to go up to floor ten.
                                                                   regard to time, meaning when access to funds is required.
                                                                   The investor’s attitude to risk is key as each investment
                                                                   portfolio should be unique to the individual. Advice should
It ascends. Just before floor five it jerks violently and stops.   vary according to whether capital creation or preservation is
You look up through the glass roof of the lift and see it is       the main aim. Taxation too is important. Where possible all
suspended on one cable that is now frayed half way through.        available tax shelters should be used provided the
You do not feel comfortable and press the alarm fearing you        investment vehicles suit the investor.
are about to experience a sinking feeling. You cannot exit the
lift fast enough. You never make floor 10.                         In retirement all investments should not be set up to generate
                                                                   interest or dividends that are taxable. This is because whilst
Now imagine another day. You get in the lift to go to floor ten.
                                                                   all interest is income, not all income need be interest.
It ascends. It jerks and stops halfway up. You look up
                                                                   “Income” can be made to appear as partial encashments of
through the glass lift ceiling and see ten cables suspend it
                                                                   gains. Such “income” may then be received tax free within
and of these one is a little frayed. You do not feel anything
like as alarmed and a few moments later the lift continues         annual CGT allowances that are generous. Yet it is the case
upwards. You exit at floor ten.                                    that the £9,600 annual CGT allowance is the most
                                                                   underused of all tax free allowances given to investors by the
Which lift would you rather be in?                                 government, very often by those who are paying 40%
Now substitute cables for your investment portfolio. The           income tax on dividends, interest and pension income.
analogy is that those who have been most disappointed by           We urge readers to build diversification into their portfolios
their investments over this decade are those who often have        and to do so within each of the low, medium and higher
overly invested in just one sector (one cable). They have          sections of their holdings. Lots of cables means you can
failed to diversify across a number of sectors (ten cables). If
                                                                   better withstand and minimise losses if one or two gets a
they picked technology based equity funds leading up to
                                                                   little frayed!
2001 or almost any shares in the year ahead of 2001 the
sinking feeling will have been alarming. There are many that       We have experienced consultants who can advise you on
have experienced this discomfort. Equally others may be            your investment portfolio construction, be it by way of capital
disappointed with their with profits policies and the fact many    investment or pension accumulation. Our case studies show
receive no bonuses.                                                time and again how we have transformed the position of
More recently, the fall in share prices, along with falls in       those who come to us for advice, diagnosis and treatment.
property values at the same time, will have hit those heavily      Our past issues of Financial Surgery Magazine cover
weighted in these areas to exclusion of other sectors.             this area. Ask for a copy by going to the enquiry form
A well-balanced investment strategy is one that is safely          or visit our website and see our Library section. You
diversified and does not depend overmuch on the fortunes           can also ask us for individual help and guidance too.

                                                                                                      RetirementGuide            5
About                                                  9 steps to mitigate
Taylor                                                 inheritance tax
                                                             ere we set out 9 steps that exist        benefit that each year the couple retains

       ID    is    a   specialist    source
       independent financial advice in
       retirement matters and the areas of
                                                       H     to help mitigate IHT. No
                                                             mitigation strategy should
                                                       become final without considering all
                                                                                                      over 99% of their assets for themselves.
                                                                                                      This is achieved by arranging joint life last
                                                                                                      survivor life insurance in trust for children.
                                                       of these options, with the help of a
wealth preservation and wealth creation.               good independent financial adviser.            Step 4: Consider using a
The Company is dedicated to providing a
very personal service to its clients.                  Step 1: Make a Will                            Loan Trust
                                                       It is important to make a will to set out      Let’s take a couple in their early 60’s who
The Company has been lead by Keith Taylor
                                                       whom you want to inherit your estate. If       are willing to look at giving away only the
our Managing Director since 2001. Aged 55,             you die intestate, it is possible that         growth in value on some of their capital,
Keith’s career stretches back to the 70’s when         others than those you intend to benefit        in favour of the growth monies passing
he first started to help doctors and dentists          will share in your estate. Also consider       to their children when the survivor of the
with their financial planning. In all the time since   making use of Discretionary Will Trusts        two of them dies. In the meantime they
                                                       to ensure you create maximum flexibility       want to be able to have an income from
then Keith has specialised as an independent
                                                       in will planning alongside gifting of Nil      their capital and want to be able to have
financial adviser in serving the medical and           Rate Bands (see article on page 40).           access to the whole of the principal sum
dental professions.                                                                                   if needed. By using a Loan Trust during
His career has involved Keith in working in BMA        Step 2: Consider gifting                       their lifetime our couple retains full
House in London for 10 years, Manchester for           capital away                                   access to their initial capital and when
                                                                                                      required in the future this could be repaid
7 years, Stevenage for 11 years and for the last       Each individual can make annual gifts of
                                                                                                      to them in annual installments to provide
8 years from a City of London base. He has             £3,000 a year. You can also make gifts to
                                                                                                      income. Here the trust provisions ensure
operated at director level helping to manage           children in consideration of marriage of
                                                                                                      all subsequent growth on the amount
                                                       £5,000 (grandparents £2,500). You can
large companies and helped build small                                                                placed in trust does not form part of their
                                                       also make gifts from normal annual
companies to large concerns.                           expenditure that do not diminish lifestyle.    estate for IHT purposes. All growth on
                                                       By all means gift capital to grandchildren     the capital invested is always therefore
A much in demand public speaker, Keith has
                                                       but remember that when you make a gift         exempt from IHT and is owned by the
lectured widely throughout the length and                                                             children through the trust. The loan trust
                                                       to a first grandchild not to be overly
breadth of the UK to practitioners. Meeting            generous as you could be blessed with          route is a useful way of controlling the
clients and potential new clients is something         many more. Gifts over and above the            potential Inheritance Tax on an estate.
Keith particularly enjoys.                             allowances but within the current nil rate
                                                       band of £312,000 will be exempt from           Step 5: Use a Gift Trust
He is also well published. He has written              IHT if you survive the gift by seven years.    Lets take a couple who do have surplus
hundreds of articles for journals. For doctors
                                                                                                      capital and are comfortable with giving
GP Magazine, Medeconomics, Health and                  Step 3: A simple option                        away to their children a significant sum
Aging, The Physician and the Journal of                                                               together with all rights to the income it
Hospital Medicine are amongst his body of
                                                       involving no large gifts                       could have generated for them. Here it is
                                                       Let us suppose you are not willing to          possible to set up a type of Gift Trust where
work. For dentists The Dentist, BDA News,
                                                       make large gifts of capital to children – as   they make an outright gift of all the capital
MADRAS Reports, Probe, Dental Practice and             you want to remain in control of your
                                                                                                      invested. The couple are the settlors who
Dentistry Monthly have commissioned Keith              capital and the income it generates. Let
                                                                                                      set up the trust, appointing the trustees
over the years.                                        us also suppose you want a relatively
                                                                                                      (themselves and their children) and naming
                                                       simple and straight forward solution to
He is the editor and leading contributor to                                                           beneficiaries as their children. Essentially
                                                       IHT funding and mitigation. Well if most
our own client magazine entitled Financial                                                            they have given the money to their children
                                                       couples in their 60s can gift just a quarter
                                                       to a half of 1% of their total assets each     but it only passes to them when the
Surgery. The latest issue can be found in our
                                                       year into trust for the children, for          survivor of the two of them dies. Here, the
website Library.                                                                                      trust provisions ensure all the capital gifted
                                                       example £3,600 a year (or £300 monthly)
Unlike many MD’s, Keith is easy to reach               on an estate of £1 million, then this          into the trust does not form part of their
and very much is a “hands on” leader                   would generate sufficient monies in trust      estate for inheritance tax purposes once 7
                                                       to meet IHT from the date of the first         years has elapsed from its inception. The
of the Company. Contact him on his
                                                       monthly payment into trust. This would         gift of capital is a potentially exempt
mobile 07793 062 422, or by emailing                                                                  transfer (PET). If they survive for 7 years
                                                       be payable upon death of the survivor of or by calling the             the two of them – a sum of around              after making the gift, the transfer will fall out
numbers in the Contact Us section.                     £360,000. This comes with the great            of their estate for IHT purposes.

        6         RetirementGuide
Step 6: Is a Discounted Gift                    Step 7: Look at Enterprise                  into an AIM Share Portfolio or a
                                                                                            Residential Property Share Portfolio that
Trust for you?                                  Investment Schemes                          qualifies for business property relief.
Yet another couple, this time in their early    Such a route gains the investor 20%         This will then will mean that if this 80
70’s, had significant means but felt            income tax relief, deferral of any CGT      year old survives just two years more,
unable to give away to their children a         liability and the capital placed remains    we expect that we could have placed
significant capital sum unless they could       entirely in your ownership and is           £100,000 outside her estate exempt
retain a lifetime right to the income it        exempt from IHT after just 2 years.         from IHT. The above works because we
generated. They needed the income to            See the article on page 37 of               create a debt against the estate that will
be sure of maintaining their standard of        our spring 2008 Financial Surgery           act to reduce the portion that is taxable.
living and to provide for future care           Magazine (available in Library at           The equity release extracts capital from
needs if needed. Here a Discounted Gift for a
                                                                                            the property so this is then placed in a
Trust could be used. With this type of          practical case study.
                                                                                            portfolio of carefully selected AIM
trust the couple makes a gift of capital to
trustees. As before the trustees then           Step 8: Look at investments                 shares. Such shares can remain in the
invest the money for the beneficiaries.                                                     ownership of our client and if she
                                                qualifying for Business                     survives just 2 years their value will be
However during the couple’s lifetime they
retain a right to income that will be paid      Property Relief                             exempt from IHT. For those of most
annually with the level of income fixed at      As with Step 7 see the article on page      senior years this use of Route 9 can be
5% at inception. The gift of capital is         38 of our spring edition Financial          very powerful as inheritance tax
again a potentially exempt transfer (PET).      Surgery for a case study to highlight       planning of the last resort.
If they survive for 7 years after making        how effective this route can be to
the gift, the transfer will fall out of their   mitigating IHT over two years, again        Successful IHT mitigation in our
estate for IHT purposes. The value of the       without gifting away any of your capital.   experience is normally achieved by
PET will be less than the amount gifted                                                     use of more than one of the above
into to the trust. This is because the PET      Step 9: For those of more                   steps as part of an overall IHT
is calculated as the amount they gifted         senior years consider Equity                mitigation strategy. What’s more
into the trust less the value of what they                                                  these steps are rarely taken all at
retained (their right to annual payments        Release on your Home                        once. It is not unusual to build on
for their lifetime). For a couple both aged     Take as an example an 80 year old           these step by step to mitigate IHT
70 the actual value after allowing for the      whose estate had grown rapidly in           as clients progress into retirement
above is governed by their age, sex,            value over recent years boosted by the      years. The first step is the most
health and the income taken as annual           boom in property values. IHT might not      important to start a short walk to
payments to them. The discount on the           have been much of a problem 5 years
                                                                                            fully effective IHT mitigation.
gift made is likely to be around 22% so         ago but today IHT could be £100,000.
that from say a total sum of £100,000           This is a real worry. She cannot count      If you would like to find out
only £78,000 counts as a PET that will          on surviving another 7 years so giving      more about such tax mitigation,
fall out of the estate once 7 years has         away her assets would not help reduce       call us, visit our website or
elapsed. The 22% counts as being                IHT. Here we can use Equity Release of      return the enquiry form at the back
removed from their estate at the outset.        £100,000 combined with investment           of this Magazine.

Continued from page 1                           On the other hand, if from a family         What is the best option will vary
                                                where genes favour longevity (or the        according to the financial, family and
If inflation remains low and you fully
                                                longevity of your spouse/civil partner)     health position of each individual
expect not to live more than say 12 years
                                                and you are concerned about rising          practitioner. Then must be factored
past your retirement date (and if married
                                                                                            in other variables like inflation.
the same for your spouse) then taking           inflation long term this new option may
                                                                                            Individual advice that is independent
the extra lump sum could be attractive.         be less attractive.                         and can be backed up with actuarial
                                                                                            analysis is vital. DID is very well
 Taking more tax free cash lump sum                                                         placed to help practitioners given
                                                                                            our familiarity with the benefits of the
 – an example                                                                               NHSPS, our commitment to
                                                                                            independent financial advice and the
 A member of the NHSPS receives notice that the pension payable upon
                                                                                            availability of actuarial expertise
 retirement is £50,000 and the tax free lump sum is £150,000.
                                                                                            within our company.
 Question: What is the maximum additional lump sum that can be taken
 and how much pension do I give up in return?                                               We can help model the pros and
 Answer: The maximum additional lump sum that can be taken in lieu of                       cons around the above and so help
 pension is £117,852. The pension that must be given up from the £50,000                    you come to a quality decision on
 otherwise payable is £9,821.                                                               what could otherwise be a tough
 Question: Suppose I only wanted to take £48,000 as an extra                                judgement to make. Remember
 commuted tax-free lump sum? How much pension do I give up?                                 too that you only have one chance
 Answer: The pension given up to increase the lump sum by £48,000 is                        to get this right.
 £4,000. You give up £1 of pension for every additional £12 of lump sum taken.              If you would like help with deciding
 Overall in this case the total tax free lump sum would then be £198,000 and                whether to opt to take more tax free
 the pension £46,000.                                                                       lump sum upon retiring from the
 Source: Pension commutation calculator on NHSPA website.                                   NHSPS, call us, visit our website or                                                                  return the enquiry form overleaf.

                                                                                                         RetirementGuide             7
                                                                                                                 Contact us
                financialsurgery                                                                                 We have consultant advisers who are
                                                                                                                 very experienced in helping our clients
                                                                                                                 with their financial planning and

                                  Enquiry Form                                                                   portfolio management. Our consultants
                                                                                                                 have specialist skills to provide help and
                                                                                                                 guidance upon request.
DID is committed to providing you with whole of market independent financial
advice. Advice can be by agreed fee or commission – you decide. This means                                       We offer all new clients an initial
the widest spectrum of independent financial advice is available to you from                                     meeting for which we expect no fee or
                                                                                                                 commission. Thus you may approach
DID. Listed below are some of the areas we can help you with upon request –
                                                                                                                 us for help in the knowledge we will
simply tick the boxes, add your name, address and telephone numbers and
                                                                                                                 only ask you to commit to being
return by Fax to 020 7990 9812 or by post using the prepaid envelope provided:                                   advised by us once we have met you,
                                                                                                                 have fully understood your financial
To DID, please let me have advice on the following:                                                              position and are comfortable with
                                                                                                                 establishing a relationship with our
          Spring Edition Financial                                  Living Time vs Annuities                     adviser. This is all-important.
          Surgery Magazine                                          Capital Gains Tax Mitigation                 We accept that you may choose not to
          Post Budget Financial Review                              Protected IHT Tax Services                   take matters beyond a first meeting
                                                                                                                 but we trust in the competence of our
          Pre Retirement Planning                                   exempt after 2 Years
                                                                                                                 advisers. So may you.
          At Retirement Planning                                    Will Trusts                                  To arrange for a meeting call us, or
          Post Retirement Planning                                  Equity Release                               return the Enquiry Form.
          Understanding USP/ASP                                     ISAs or PEP/ISA Transfer                     Tel:    020 7857 4038
                                                                                                                 Fax: 020 7990 9812
          Merging Pensions to Add Value                             Investing in Tax Shelters
                                                                                                                 or visit our website:
          Managing Pension Wealth                                   A Full Review of my Portfolio.     
          Retiring? Increasing NHSPS Tax                            Other – please state in box.
                                                                                                                 Correspondence to:
          Free Lump Sum
          Security in Retirement through                                                                         3 Bunhill Row
          pension funds with protection                                                                          London, EC1Y 8YZ
          Help with steps to mitigate                                                                            Tel:  020 7857 4038
          Inheritance Tax                                                                                        Fax: 020 7990 9812

          VCT Schemes
                                                                                                                 Registered Office:
          EIS Schemes                                                                                            Ternion Court, 264-268 Upper
                                                                                                                 Fourth Street, Milton Keynes,
                                                                                                                 Buckinghamshire MK9 1DP

Post:                                 GP                 Dentist             Consultant
                                                                                                                 DoctorsInvestDirect is a trading style of
Other Post (Please state)                                                    Date of birth                       Taylor Wealth Management Ltd which is
Daytime Telephone No.                                    Evening Telephone No.                                   authorised and regulated by The
                                                                                                                 Financial Services Authority.
Email address*                                                                                                   The comments and case studies in this
    *If you provide us with your email address you give us authority to communicate with you from time to time   Supplement do not constitute individual
                 through this medium and we may also send you future publications to this address.               financial advice to readers. Readers
                                                                                                                 should ask for personal advice before
                                                                                                                 acting on any of the comments or case
You can also call us on 020 7857 4038 or enquire through the Enquiry Page of                                     studies shown. We are happy to provide
our website – address as opposite. Individual Financial Surgery will then follow                                 such advice.
geared to your own needs.
FAXBACK TO                                 DOCTORSINVESTDIRECT   020 7990 9812                                   We are indebted to Scottish Widows for the
                                                                                                                 technical help they have given in producing
                                                                                                                 this guide. We also value contributions
or post back in the reply paid envelope                                                                          made by Zurich and Living Time.

8         RetirementGuide

To top