Case Study:
Tax Planning:
The plan recommended used the house’s equity to fund school fees.
A couple with two children were planning their school fees for education that was due to start in five years’ time. The projected total school fees (including university) was a daunting £460,000.
The husband was the sole income provider with an income of £55,000 per annum with other benefits. Their house was worth approximately £325,000 with a small outstanding mortgage of £50,000.
After discussion, it was agreed that the financial goals were to make school fees more manageable and tax-efficient.
The plan recommended used the house’s equity to fund school fees.
In this particular case, rather than a draw down mortgage, a single sum would be acquired for investment. As other investments were in place, a sum of £100,000 would be required.
There was also £15,000 worth of loans outstanding which could be paid off by increasing the mortgage further, which would free up disposable income to direct at school fees if necessary.
Three different tax-saving mechanisms made this plan extremely efficient and the school fees manageable.
A cash deposit fund of £20,000 would be kept by for early years, while a full quota of ISA investments would be deployed and the balance invested in unit trusts.
As the risk profile was on the conservative side, a low-to-balanced risk mixed asset fund was selected. Similarly, some guaranteed return funds were selected for unit trusts. The husband already had a number of pension schemes. An additional personal pension was recommended to create a total cash lump sum large enough to pay off any outstanding mortgage in 25 years’ time.
Contributions made to the pension fund would be supplemented by an additional 67% of tax paid as the husband was a higher rate tax payer.
A modest additional monthly payment of £350 would enable the pension pot to release a predicted value of over £600,000.
Three different tax-saving mechanisms made this plan extremely efficient and the school fees manageable.
