Full Review

John is aged 60, married to Mary aged 57, with whom he has four children. John and Mary have significant assets and are joint owner directors of a successful company through which they pay themselves a salary of €120,000 and €23,000 respectively. They also have significant property assets - both Irish residential property and business property with outstanding debt. John has a number of small pension funds with various providers. John would like financial freedom as soon as possible, but feels that it will be in about 5 years’ time. He is also considering what to do with the business in the future – either selling the business on the open market or to his eldest son.

We began the planning process by, initially, performing a detailed fact-finding exercise with John and Mary.

 

Analysis of Current Financial Situation

• Assisted John and Mary in defining their desired lifestyle income, – this is the after tax income they require/desire to fund their monthly lifestyle and it is needed for the calculation of the future capital requirement to fund their future lifestyle.
• We outlined that the capital fund (level of assets) required in 5 years’ time to meet their income target.
• We assessed their progress against this financial target based both on their current asset base and the existing level of regular pension funding and investing. We calculated that they would fall short of attaining the required capital fund should they continue on their current course.
• We outlined the additional regular funding (through pensions and investing) that they would be required to make in order to reach their financial objective within the desired time frame.
• We outlined tax-efficient planning tools and how tax-efficient investing can close the gap between their current situation and where they need to be in 5 years’ time.
• We provided a detailed analysis of their investments and outlined the annual investment returns that would need to be achieved to reach their financial goals.

 

 

Risk Profiling

We carried out a risk analysis on their overall investment portfolio to determine if their current investment strategy reflects their actual investment risk tolerance. Based on my analysis we identified that they were over-exposed in one asset class. We advised them that in order to rebalance their portfolio they should look to alternative asset classes, and suggested a suitable portfolio that better suited their risk profile.

Pension Planning

John had a number of different company pension plans. He has been an owner director of his current business for 20 years which has been very profitable in recent years. We carried out a comprehensive review of all his pension benefits. We identified that there was scope for his company to make significant additional pension contributions on his behalf, free from tax. A Self-directed Executive Pension Plan was established on Johns’ behalf to which the company made a significant cash contribution. Furthermore, his existing pension plans were transferred into the Self-directed Executive Pension plan leaving substantial cash available to invest.

Tax planning

John also has shares which suffered significantly in recent times. With cash now in his Self-directed pension fund he has the opportunity to take advantage of a tax planning strategy. By selling his private equity holding at market value he can purchase a very similar type of stock portfolio again, at market value, using the cash funds available in his pension. The beauty of this transaction is that John can buy the new shares with pre-tax money (through his pension fund) and any future growth in the value of these shares are also free from tax once held within the pension structure. John can also carry forward the capital losses incurred on the sale of the shares in his personal name indefinitely, and these losses can be offset against any future gains when other personal assets are sold.

Estate Planning

We reviewed the possibility of a possible inheritance tax and outlined a cost efficient means of providing funds to cover such a tax bill. As part of this exercise I also highlighted the need to have an up-to-date and centralised register of assets and liabilities and of having the appropriate Trustee/Executor to the estate and Guardian (to their children) named in the Will.

Business Exit Planning

We outlined Capital Gains Tax relief that allowed John and Mary to dispose of their interest in their company without a charge to tax. We also outlined the options for their son to take receipt of the business at a discounted price. The result of this will be a considerable savings to both parents and son.

Plan to Repay Debt

John and Mary now have a clear plan in how they will have a sufficiently large tax free capital sum which can be used to repay their borrowings on their properties. This will increase the available rental income. The net result of this will be that the debt which existed in John’s private name will cleared by funds from the company with the result of creating an income stream to him in the future.

Outcomes Achieved

Having completed the planning process and implemented some of my recommendations, John and Mary have a clear and definitive plan of how to reach financial independence, and can look forward to retirement earlier than planned should they so wish. They are fully aware of the ability to use the certain reliefs in tax legislation to sell the business to their son in a manner that will benefit both parties.  They also have the peace of mind that comes with knowing that, in the unfortunate event of something happening either of them, they have a tax-efficient and up-to-date estate plan that deals both with how their youngest children are looked after and ensures that their final wishes for their estate are carried out effectively.