index | page back | next page

The Life of Brian Riley, Phase 7

1

1. The advice to include Critical Illness Cover has been highlighted by Brian's heart attack.

2. The level of life cover has not been maintained at a level appropriate to the life style which Brian has provided.

3. Prior planning for the potential Inheritance Tax liability would have been preferable to the current situation.

2

The Sale of Brian's shares presents a potential Capital Gains Tax liability.The amount of the liability depends on whether we are considering the disposal to the 'biggest rival' or the subsequent disposal of the new shares. It is no longer possible to mitigate the liability by using retirement relief.

Brian's pension options are:

1. Transfer all accrued benefits to his Executive Pension Plan and accept the limit on benefits

2. Transfer all accrued benefits to a Personal Pension Plan arrangement (current or new) subject to the restrictions on the input.

3. Use the Open Market Option on the RAC and the Personal Pension Plan to combine benefits.

4. Restrictions:

   Aggregation of benefits. Restriction of Tax Free Cash if Open Market Option is used.

   Consideration should be given to taking the maximum tax free cash in order to increase flexibility, accessibility and to benefit from having only part of the income payments subject to income tax.

   As Brian is a controlling director his final remuneration will have to be averaged over at least 3 years using his salary and P11D figures.

   Brian can have his maximum pension benefits calculated as the greater of:

   1/30th of final salary for each year of service from his Occupational Scheme including any other previously

   i.e. 1/30 x Final Salary (capped at £102,000) x Years of service (max. 20)

   2/3 x £102,000 = £68,000

   OR

   1/60 of final salary (capped at £102,000) x years of service plus any other preserved or accrued benefits

5. i.e.20/60 x £102,000 = £34,000
   plus
   £150,000 + £290,000 x 6% = £26,400
   Total = £67,600

6. The above calculations are to determine maximum benefits and do not affect the right to take tax free cash and a reduced pension.

   For example:

   EPP Fund of £560,000 could provide a Joint Life pension with a 2/3 widow's pension.

   PLUS

   He could use the Open Market Option on the RAC to produce a total fund of £444,000, which could produce a tax free cash sum of £110,000 and an escalating single life pension of £20,040 pa

   Other combinations could be produced dependant on Brian's personal requirements.
   NB. Rates used for above calculations are:

   Single Life 6% To have pensions increasing by 5% pa would reduce each rate.

4

As currently arranged there would be no liability to Inheritance Tax on Brian's estate as his will leaves the entire amount to Judith and the Potentially Exempt Transfers made to the children would fall within the Nil band.

Brian and Judith could reduce their ultimate IHT liability by changing their wills and leaving an amount equivalent to the nil band (£263,000 in 2004/05) to their children (or any other non-exempt beneficiary) and leaving the balance to the surviving spouse.

Brian and /or Judith could consider using their annual allowance of £3,000 now to reduce their overall estate.

The West Country Mutual Joint Life First Death Whole Life Policy will currently exacerbate their IHT position and consideration should be given to approaching the provider with a view to making it paid up and converting to Joint Life Second Death. This would also increase their spendable income by £4,200.

REMEMBER You should not use any information contained on this site as the basis of any action until you have discussed matters with your financial adviser.

REMEMBER You should not use any information contained on this page as the basis of any action until you have discussed matters with your financial adviser.