Case Study – Business Exit and Inheritance Tax – Mr and Mrs Best

Mr and Mrs Best own a limited company and came across us online when looking for help planning their exit from the business.

Although the following case study relates to an actual example, where we have helped our clients by providing solutions to their financial problems, the names and figures have been changed for confidentiality purposes.

Overview

They started their business over 20 years ago and had facilitated a partial exit by selling a minority share. They plan to fully exit the business in the next 3-4 years.

Mrs Best feels that they have more money than they could ever need and would therefore like to gift large amounts of capital to close family, especially their children. However, Mr Best has his reservations, as they previously had little in the way of savings before the business was partially sold. With this in mind, Mr Best wants to ensure they will still have enough to live on for the rest of their lives before gifting too much away.

Mr and Mrs Best have mainly only invested in property in the past, they have put a small amount in each of their pensions but have never looked at their performance or suitability. They asked if we could help and I established a structured plan for their wealth but made sure I educated them in the process to ensure I built their knowledge and confidence. 

We have a vast amount of experience and specialist knowledge in advising business owners and directors, and we often find that they neglect their own personal wealth due to their busy lives and inclination to focus on the business. The Bests were unfortunately no exception to the rule, having spent their lives making their business a success but at the sacrifice of tax efficiently drawing on capital along the way and effectively planning for the financial future. 

Recommendation

Initially, I spent much of my time educating Mr and Mrs Best on our portfolios, suitable investment strategies, and various tax advantageous solutions with the hope of bringing them closer to their goals.  

I then moved on to conduct a thorough financial analysis of their current circumstances, including cashflow modelling to more visually demonstrate to Mr and Mrs Best how long their funds would last. We reviewed a number of alternative solutions that we could implement and then allowed for different scenarios to unfold. This also included stress testing our plan, to highlight what may be the case should we encounter significant market downturns along our journey. By looking at a range of potential outcomes, we were able to plan some additional security we could put in place to mitigate any unexpected risks.

The solution I recommended showed a positive outcome as Mr and Mrs Best had enough capital to produce an income which would enable them to maintain an enhanced standard of living for the rest of their lives. Much to Mr and Mrs Best’s delight, this was without accounting for the additional investment of further funds due from the sale of the business in the years to come! 

As Mr and Mrs Best are both higher rate taxpayers, I put in place a tax efficient investment structure for their new capital including maximising pension and ISA contributions. 

The proceeds of the partial business sale significantly increased Mr and Mrs Best’s inheritance tax liability (IHT), which would mean they could pass less of their wealth onto their children unless we took swift action. To address this, we looked at a range of IHT solutions and decided that a combination of options would prove most suitable to achieve their goals. 

For the remaining IHT liability I put in place a joint whole of life plan which would ensure that the IHT bill would be paid in full and their entire wealth would be passed onto their children in the event of death.

Finally, with the larger business sale planned in the coming years, we introduced Mr and Mrs Best to a trusted tax adviser and solicitor, alongside working with our Private Client Team who, through a number of meetings, have helped them to set up a company structure to pass their wealth on to their children. 

The plan is that in the future, the children will be engaged in the running of the company.  This will allow them to build the necessary skills and experience, getting them used to managing the sort of wealth that they will ultimately need to become accustomed to dealing with moving forward, but in a controlled and supportive manner.

Finally, as part of the discovery process, we found that Mr and Mrs Best had very basic Wills* that were no longer suitable for their needs, in addition to no Lasting Powers of Attorney* (LPAs) in place. As part of the introduction to the solicitor, I flagged my concerns and new Wills were drafted, alongside LPAs, to ensure their estate and family’s future is fully secure.

Conclusion

Mr and Mrs Best now have a robust wealth structure in place that instils confidence in their future. More importantly, the plan caters for the additional wealth they are due to receive over the coming years, and through intergeneration planning, takes their wider family into consideration to ensure a smooth transition of wealth in years to come.

By coordinating with our experts and network of professionals, along with our own advice and Private Client Team, we were able to give Mr and Mrs Best a truly holistic high quality wealth management service. Providing them with confidence that their wealth was enough to cover their expenses for the rest of their lives, as well as the reassurance that their children would be well looked after.

If you have been wanting to review your retirement arrangements, we would be happy to help. You can call us on 01858 791182 or get in touch here.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.  

Exit Strategies may include the referral to a service that is separate and distinct to those offered by St. James’s Place.

*Will writing and Powers of Attorney involve the referral to a service that is separate and distinct to those offered by St. James’s Place and are not regulated by the Financial Conduct Authority.

The advice provided to Mr and Mrs Best was given after a full evaluation of their specific needs, circumstances and requirements.  The solutions provided would not be suitable for most investors and the information provided does not constitute advice.

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We work with many local business owners and directors across the Midlands, helping them and their families to become financially independent.

Whether you are a startup looking to scale or a seasoned business owner planning your next journey, we will take the time to understand your objectives and plan a course of action.

You can call us on 01858 791 182  or email us at the link below.

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Sovereign Wealth Limited is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/products. Sovereign Wealth Limited is a Limited company registered in England and Wales, Number 07115386. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.