Last month our Pensions and Investments Specialist Jo Penly met up with a client who was at a bit of a cross roads and needed advice on which way to turn.
Selling shares in a construction company
John had a business in construction that he owned with two co-directors. They decided to sell the business as all three directors are in their 60s and were unsure how much longer they wanted to carry on working. John received a lump sum from the sale of his share of the business. He primarily wanted to meet with Jo to see if the lump sum he received would be enough to live on now he no longer had the business, or whether or not he would need to carry on working part time. Due to the sale and the lump sum he has received, John is also facing a significant tax bill which will be due in the next tax year and John wanted advice on whether or not any of this tax bill could be mitigated through tax efficient investments.
Looking at John’s current situation
Jo was initially keen to get a better understanding of what John’s expenses would be and how these could change in the future. This would allow Jo to calculate the income that John would need to maintain his standard of living. John indicated that he wanted to move home and he would likely upsize. He also wanted to travel more and replace his car at least every three years for the foreseeable future.
Jo also obtained information on John’s potential sources of income in the future, including his state pension and some frozen pensions John had not reviewed for a while.
Using this information, Jo carried out a series of cash flow forecasting with John. The cash flow forecasting is completed using a computerised system which looks at the income needed as a result of fixed outgoings and other expenditure and helps to indicate if there is a shortfall or surplus based on the resources available. The forecasting Jo completed helped John identify if his goals were achievable and to understand the potential risks which could affect his ability to meet his needs in the future. For example lower investment returns or higher inflation.
Furnished with the knowledge that he did not need to keep working and he could sustain the standard of living he wanted to, John was able to revaluate his position. Without the overriding thought that work was a necessity, John has decided to continue working part time doing work that he enjoys.
Jo was also able to advise John on the construction of a long term investment strategy encompassing pensions, ISAs, investment funds and VCTs, which achieved his objective of mitigating tax now and providing a structure to generate the income he needs and the flexibility to adapt this as his needs change.