How we helped Matthew and Caroline
Matthew and Carole were determined their children would attend private school however by paying school fees from taxed income they had no surplus. Matthew had previously been made redundant which had wiped out their savings. They were anxious that with no savings, a further period of redundancy could quickly leave them with financial problems.
Without a plan, they were living in hope that things would simply be okay. Furthermore, they were unable to save a sufficient amount for their future (a common problem). However, what they did have was a reasonable amount of equity in their home.
Crucially, they had identified the possible future problem early enough so they could do something about it.
Problem and Implications
The main issues were as follows:
Matthew had been made redundant in the past which had wiped out the couples savings.
Matthew's was earning less than in his previous job.
The couple could not save so were vulnerable to adverse financial conditions. They could not afford for anything to go wrong!
Whilst there was no actual problem, Matthew and Caroline were anxious about their precarious position and wanted somehow, to find a safety net.
Walking the high wire - SAFELY!
We were able allay Matthew and Caroline's fears and help them establish a safer way to navigate their school fees.
Mortgage / Lifetime Mortgage
As Joanna wanted to avoid selling her home we considered how a mortgage could buy her time.
We highlighted how using capital instead of income to cover school fees would allow Joanna to enjoy her lifestyle and look to an earlier retirement whilst at the same time reducing IHT by creating a debt on her estate.
We then showed Joanna how, once retired she could switch from a traditional mortgage to a Lifetime Mortgage, giving her further flexibility and security but crucially meaning she could retire when she chose without sacrificing Rebecca’s school fees.
Lump Sum Investment
If Joanna were to increase her mortgage she would gain access to a lump sum of capital which she could invest.
We calculated the lump sum amount she would need to cover her school fees.
Other IHT Measures
Tax Efficient Investment
Creating a mortgage debt would not itself address the IHT issue as it also created a lump sum of capital.
Joanna’s school fees payments would help reduce IHT by eating away at the capital but it would take a long time. her IHT on the other hand was already alive and kicking.
We discussed with Joanna the existence of certain investments which sit outside of an estate for IHT purposes and how they could reduce the tax payable on her death.
A final option we worked through with Joanna was using insurance to mitigate her IHT liability.
Again, using her mortgage lump sum, she was able to fund an insurance premium which would pay out when she died.
Wrapping the policy in a suitable Trust, the proceeds would not form part of Joanna’s estate but could be used by her daughter to pay any remaining IHT liability not already covered.
Joanna was overjoyed when we helped ease the weight of her dilemma. The key benefits were life changing.