Nigel is 55 years old, an additional rate taxpayer, lives in Brighton and works in the city. Nigel’s company was bought by another, and he received shares during this buy out to the value of £4,000,000. The shares that passed to Nigel were deemed to have been given to Nigel at nil value; which meant he would have to pay Capital Gains Tax on the total share value on sale. He decided to sell his shares and came in to see us to invest some of the proceedings.
His Objectives
Nigel is looking for a way of investing as tax efficiently as possible. He pays around £75,000 income tax a year and he will have to pay a large amount of capital gains tax on the sale of his business.
Our Recommendations
Nigel is an experienced investor and will utilise his ISA allowance within his share portfolio which he enjoys investing in.
He does not want to manage most of his money however and wanted some guidance on this. We recommended he invest £1,000,000 into an Offshore bond, due to his capital gains tax and income tax situation. The Offshore bond allows Nigel to take up to 5% tax deferred withdrawals from the bond once he retires. His income will fall at retirement allowing Nigel the flexibility to withdraw from the bond in various stages, maximising his income tax allowances.
We have also recommended he invest £200,000 into 4 Enterprise Investment Schemes (EIS). We are investing in 4 different schemes for diversification and due to the high-risk nature of these investments. EIS’s have a number of tax benefits that would be helpful to Nigel.
By investing in the Enterprise Investment Schemes, Nigel can defer £200,000 of the Capital Gains tax payable on the shares of his business. Nigel will also receive income tax relief of 30% or £60,000 which will substantially reduce Nigel’s income tax bill this tax year.
Nigel does not have any children but the EIS’s also have Inheritance Tax benefits also.
Please note the above case study is based on a real client seen by our advisers, however all names have been changed for confidentiality. This case study forms a summary of advice and before taking out such products we recommend taking independent financial advice as everyone’s situations are different.
