Client Profile

Mr. Williams is a 70-year-old widow with a significant sum of £500,000 available for investment. His primary objectives are to secure a reliable income stream and reduce the value of his estate for inheritance tax (IHT) purposes. Mr. Williams is particularly interested in strategies that would allow him to achieve immediate tax benefits and a further reduction over time.

Challenges

IHT Mitigation: With inheritance tax concerns due to the size of his estate, Mrs. Williams sought a solution that would reduce his IHT liability.

Regular Income: Mr. Williams needed a stable income source to maintain his lifestyle while keeping his investments aligned with his IHT goals.

Solution: Discounted Gift Plan After reviewing his options, I recommended the Discounted Gift Plan (DGP) as a suitable strategy. This plan met both his objectives by providing:

• Immediate IHT Savings: With the DGP, Mr Williams could secure an immediate reduction in the taxable value of his estate. By moving £175,000 into the DGP, he achieved a 40% tax saving on that portion, amounting to £70,000.
• Additional Potential IHT Savings: The plan provided a potential future tax saving on the remaining £325,000 invested. After seven years, the value of this sum would fall outside of his estate, yielding an estimated tax saving of £130,000 (40% of £325,000).
• Regular Deferred Income: To meet his income needs, the plan would pay Mr. Williams an annual income of £20,000, beginning after a one-year deferral period and structured as monthly payments. This approach ensured that he enjoyed a consistent, tax-efficient income from her investment.

Outcome Through the Discounted Gift Plan, Mr. Williams achieved:

Immediate IHT reduction of £70,000 and a future tax-saving potential of £130,000 after seven years.

A regular annual income of £20,000 to support his lifestyle, allowing him to maximize her IHT savings while maintaining financial independence.

Conclusion

The Discounted Gift Plan offered Mr. Williams a dual solution for his goals: a reliable income stream alongside significant IHT savings. This tailored approach met his needs and enhanced his financial security, allowing him peace of mind regarding both his current finances and the future of his estate.