Tom and Melinda Bintrell are in their mid-50s with three children. They have recently paid off their mortgage and are now keen on changing their financial priorities.
Bintrell is the director of his own business which has a turnover of approximately £4m. His wife also works for the company and he pays himself and his wife salaries of £60,000 and £30,000 respectively. However as profits are variable these can sometimes fluctuate.
The couple have so far accumulated a pension pot of £150,000 with Standard Life but are not currently paying anything into this.
While they were preoccupied with paying off the mortgage on their £750,000 home, they sacrificed making regular contributions to any savings scheme. Bintrell has around £10,000 in a current account and his wife has £100,000 in equity and cash investments.
They would like to have around £1m in a pension pot by the time they retire but are comfortable with the idea that some of this could be sourced from downsizing their home. Bintrell says they would also like to understand tax-efficient methods of saving.
Two of Bintrell’s children attend private school and his youngest son will soon go to a private nursery. Ideally Bintrell would like all three to go to university and is not sure how much he should allocate for these plans.
As well as the long-term plans for his retirement and children’s education, Bintrell has a number of short-term plans, including purchasing a larger home in the next couple of years and replacing the family cars.
He is concerned that the expense of this will impact on his current savings plans for his retirement and his children’s school fees. “We have always had two cars and could not do with just one,” he says. “Ideally I would like to replace both cars, but one needs to be changed in the next few months so this is our priority at the moment.”
Simon Williamson, certified financial planner at Broadway Financial Planning, says that although Bintrell describes himself as a self-employed company director there is no such thing. There is a distinct difference between being a director of a limited company in which you own all the shares, and being self-employed, especially for pension planning purposes. A self- employed person’s profits are all taxable as earned income. When they make pension contributions, basic rate tax is deducted at source but the relief from higher rate tax (if any) is reflected in the amount of tax they pay later. A controlling director can determine whether they wish the company to make the pension contribution, in which case it is a deductible expense for the company.
Williamson also notes that Bintrell has no life assurance or critical illness cover. “Although he does not have a mortgage, he does have other substantial liabilities in the way of school fees for the children,” says Williamson.
It is also important to organise proper wills, says Williamson, as the ones Bintrell and his wife had drawn up are now out of date. Enduring power of attorney is also recommended by the advisers as a way to ensure that financial arrangements can be looked after by someone of the couple’s choice in the case of either of them becoming mentally or physically incapacitated.
John Lang, director at Tower Hill Associates, believes Bintrell could save around £20,000 each year after tax and that this could be used to meet his objectives. “Saving £20,000 a year might create a capital value in 10 years’ time of £280,000,” he says. “Having a retirement fund of £1m is certainly possible but not for at least another 15 years unless you consider downsizing your home before then. This suggests that your financial goal of upsizing to a larger house in two to four years’ time is not a realistic objective.”
Because of this, Lang says that Bintrell should be paying a pensions contribution each year large enough to make full use of his higher rate tax relief on contributions but that, when he comes to draw his pension, he is not taxed at the higher rate band. On his average salary of £60,000, this would suggest a contribution of £20,000 a year.
Lang also recommends that Bintrell’s wife review her savings and convert any non-Isa funds into Isas.
Francis Klonowski, certified financial planner at Klonowski & Co, says the Bintrells should take inheritance tax planning into consideration when making decisions for their children.
She advises both to use their nil rate bands, the amount up to which assets escape inheritance tax on death. “This is best achieved by including provision in your wills to direct assets up to the value of the nil rate band into a discretionary trust on first death instead of to each other,” she says. This would save £120,000 in inheritance tax but it could mean the couple have to change the ownership of their home to become tenants in common instead of joint tenants.
Names have been changed
