Daniel and Leanne Irwin live in the North East of England. They own a property valued around £420,000 and this is owned as a beneficial joint tenancy.

Daniel and Leanne Irwin live in the North East of England. They own a property valued around £420,000 and this is owned as a beneficial joint tenancy. They have been married for 21 years and have no children together. Daniel has one 27-year-old son, Paul, from a previous marriage.

Daniel is 58 and in good health. He married at 21 but divorced at 35, when he then met Leanne. He had a clean-break settlement in his divorce and his ex-wife has no claim on his finances.

Daniel’s father is still alive and lives 10 miles away in his own property in Newcastle. He is a widower and at 85 still lives on his own although his health is deteriorating and Daniel helps him often. The property owned by Daniel’s father is valued at £290,000 and his will leaves it to Daniel and his sister Julie. Julie lives in Devon in the South West of the country.

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Leanne’s parents are a little younger. Leanne is 52 and her parents are in their mid-seventies. They are both in reasonable health although they have started to worry about the fact they live in the South East of England, some distance from Leanne, who is their eldest child. They own a large house that has a current market value in the region of £1,500,000. They also have some jointly held investments amounting to £215,000 and ISAs of £52,000 each. On the first death, Leanne’s parents would like to leave the remainder to the surviving partner (their property is jointly owned currently). On the second death they would like to leave as much of this as possible to Leanne and her younger sister Kerry upon their death. They are very keen that the “tax man should not have any of Leanne and Kerry’s inheritance” but do not know much about inheritance tax. They are aware they may have to pay tax but would like to mitigate this where possible. Leanne’s sister Kerry is unmarried with one eleven-year-old son Steven, Leanne’s nephew.

Employment and Pensions

Daniel worked for a private company in the North East from the age of 16 to 35, when he was made redundant. He contributed to a defined benefit pension scheme. He has 19 years of pensionable service and is due to receive his full pension benefits in 2024, when he will be 60. His latest statement indicated his annual pension to be £15,620. This figure will increase in line with inflation. The total transfer value of his pension, should he want to transfer it to a defined contribution scheme is £650,000. He no longer contributes to this scheme.

Daniel now works for the National Health Service with an annual salary of £26,750. He contributes to a public sector defined benefit scheme. Based on benefits accrued to date, his latest statement predicted an annual pension of £6,000 and a tax-free compulsory lump sum of three times this amount. This is also payable in full when he is 60. Daniel does not anticipate that his salary will change significantly between now and when he intends to retire at 60 and therefore for the purposes of planning for retirement, he bases any plans on these figures. Daniel is a keen amateur sportsman and would love to have more time to devote to training and competing so is very keen to retire as soon as financially possible. He would also love to travel with Leanne. Daniel’s death in service benefit (life assurance) is £60,500 and a survivor pension would be payable to Leanne in this event.

Leanne is a Senior Lecturer at a local University with an annual salary of £51,700. She has two pension schemes. She is a member of the teacher’s pension scheme. She is unsure how much her annual pension will be when she retires but knows that there is an online calculator which she can use to help her with her planning. She is aware that she has options in relation to the age she can retire from education and the size of the lump sum relative to the annual pension she can choose to take. Currently she has built up 14 years of contributions in the scheme. Her full teacher’s pension is payable at 67 but the scheme allows members to retire earlier than this, but this has consequences to the pension payable. She thinks that her pension provides for Daniel in the event of her death but is not quite sure. Leanne particularly wants to know what her potential pension and lump sum would be at 60 and 67. She loves her job but does not want to be too old when she retires, especially as Daniel is older than her.

Leanne also has a private defined contribution pension. The total fund value is currently £85,760. She has not contributed to this scheme for many years but still receives her annual statement showing how the fund has grown. By the age of 65, this fund is forecast to be able to buy an annual annuity of around £4,000 per annum. Leanne is a bit disappointed with this value. She would like to know if there are any alternatives to having to draw an annuity.

Both Daniel and Leanne are due to receive a full state pension at the age of 67.

Daniel and Leanne have heard about the 2015 pension freedoms in the media. They have discussed how it would be useful to access their pension funds for various purposes, including paying off the remainder of their mortgage and other debts. They have heard that the reforms allow individuals to access their pensions at 55 but do not know much else about the changes or which types of pensions they relate to. Daniel has heard that it is possible to transfer his defined benefit schemes to a defined contribution scheme to take advantage of the reforms potentially allowing him to retire even earlier than he intends to. He has also heard that there are some disadvantages of doing so, therefore he seeks clarity on this.

Property and other assets

Daniel and Leanne have a joint repayment mortgage with Santander that they took out years ago. The current outstanding balance is £12,000 with around one year until the total sum is fully repaid. They currently repay £900 per month.

They have contents and buildings insurance but have no other insurance policies, other than those already mentioned and car insurance on their two cars.

Leanne owns a small house in the south of England. She bought the house at the end of June 1995 for £65,000 paying purchase costs of £2,000. She lived in it for 4 years as her main residence but then moved away and just used the flat as an additional base when she visited her parents. She has recently put it up for sale for an asking price of £325,000 (with predicted costs of sale of £2,500).

Leanne also has a valuable painting that she was bequeathed by her grandparents that she intends to sell at auction this year. The probate value was £12,000 and she has been advised by an expert that it is now worth £32,000 and she hopes to realise this. Leanne does not know if she will have to pay tax on these disposals but would like to find out about any ways in which this tax liability could be minimised.

Once both assets have been sold, she wants to use some of the money to build a fund to help provide a university education for her nephew Steven, as well as to help him with a small house deposit to buy a property in the future. She wishes to earmark £50,000 for this purpose.

Leanne would like to invest this £50,000 and any remaining proceeds of the asset disposals not used for other purposes in a portfolio of investments to grow her money. She is happy to take on some risk but wants to make sure that the £50,000 earmarked for Steven is fairly safe. She does not want to have to do much to manage the portfolio, as she is very busy.

Daniel was left £16,000 by his grandfather, when he passed away seven years ago. This is invested into £8,000 premium bonds, £2,500 cash ISA and the remainder in a savings account with a local building society. Leanne has suggested he invests in something that will give a better return, but Daniel is inherently risk averse. He has however thought that he may be willing to take on a little more risk. He would therefore be open to suggestions as to how he could invest this, and any other money he may have from other sources.

Estate planning

Daniel and Leanne currently do not have a will. Both would like each other to inherit their assets when they die and have assumed this will happen. After both deaths, they would like Paul and Steven to be provided for equally. They are not sure if they need a will, and both admit to knowing very little about them or the consequences of dying intestate. They are also concerned on the impact of ill-heath and making sure that if they are unwell, the other can make decisions for them.

Paul

Daniel’s son Paul lives with his mother. He has been saving for a deposit on a property so that he can move out and live independently. He is not sure on how to proceed. He has saved £10,000 with the help of grandparents to date. His gross salary is £25,000 per annum.

Other Liabilities 

Daniel and Leanne have a car loan with a balance outstanding of £8,500. This is due to be fully paid up in 3 years’ time. They currently pay £300 per month. Leanne has £9,700 on a credit card. She only pays the minimum balance off this each month.

Income and expenditure

Daniel and Leanne have an approximate joint monthly net income of roughly £5,000. They do not wish to substantially change their lifestyle. They do not have surplus income at the present time as like to holiday often and eat out frequently.

Assessment Tasks

You are to write a client report (2500 words) for the Irwin family that covers the following:

  1. A financial plan for Daniel and Leanne. (60 marks- see below for allocation)

 

You should make a judgement about the timescale of this plan, taking into consideration the financial milestones and factors mentioned in the case study.

It should include:

  1. A financial plan for the couple to include (these should be included as appendices to the report or incorporated into the main report in the form of a table):

 

– A breakdown of the couple’s objectives over the short, medium, and long term.

– An assessment of the couple’s current assets and liabilities and how these may change between now and retirement (exclude pensions and potential inheritances from this assessment).

– Two alternative financial plans. This should be in the form of a summarised cash flow that models the likely changes in the couple’s income and expenditure from now into retirement (these should be based on Leanne retiring at 60 and 67 and Daniel retiring at 60). You should consider the information in the scenario (you may use excel for this and copy into the report). You need to determine the changes in the couple’s income and expenditure between now and retirement. You should also show the position at retirement in both scenarios (Please note you are not required to re calculate the current net pay of the couple and should use the approximate estimate of joint net income in any projections).                                                                                                                                                                   16 marks

 

  1. Specific advice regarding the 2014/15 pension reforms. You should make clear to the couple to which pensions they are relevant and what options the couple have as a result. You must provide specific recommendations for Daniel as to the final salary scheme transfer, including the advantages and disadvantages of transferring his defined benefit scheme to a defined contribution scheme.

8 marks

  1. Advice regarding any issues mentioned in the case study in relation to capital gains inheritance taxation and estate planning. You should advise the couple what the CGT liability would be if Leanne disposed of both assets but also consider if this can be reduced through mitigation measures. You should also advice on the potential IHT liability for Daniel and Leanne’s parents’ estates and advise on how this could be mitigated. You are expected to use 2021/22 tax year in calculations. (Provide supporting calculations. You should assume that Leanne has owned the property for 26 years in your calculations. State any other assumptions you make).                                                                                                                                                                                                                  14 marks
  2. Based upon the couple’s risk profile, recommend two separate investment portfolios for Daniel and Leanne. You should consider the funds available, clearly showing where these funds have come from. You should also attempt to model the performance of the portfolio between now and retirement (you may ignore inflation).                                                                                                                                                                      14 marks
  3. Provide mortgage and budget advice to Paul. You should identify appropriate mortgage options and comment on their affordability as well as advising Paul about other costs (both one off and continuing) of buying a property. You should calculate Paul’s net pay and suggest a possible monthly budget that may help Paul manage his money in the first year.                                                                                                                                                                         8 marks

 

You should state any assumptions that you make, but you need to ensure these are from robust sources. You need to identify any information that you would need to seek clarification on from Daniel and Leanne. You are the financial advisor, and you should treat the information in the case as if it has been gathered from a first client meeting.  Additional information and calculations should be included as appendices. However, these must relate specifically to the case study and support the financial plan you produce. Appendices or tables are not included in the word count.

You must base any calculations on the 2021/22 tax year.

Please note this is not an essay, it is a report for the client. You should write to the client in the report. You need to ensure that any sources are referenced in text and at the end in references. You should use appropriate sections and clearly show this in a table of contents at the start of the report.