David and Jean are in their mid 40s, living in south Dublin. David has built a successful career and is now a partner in a leading professional services firm. Jean has taken a career break to look after their children. David and Jean are very typical of our financial planning clients today.
David enjoys the benefit of a significant income, and today he is at or near his peak career earnings. With great foresight, David has been making maximum contributions to his pension fund in recent years, growing the fund to more than €1m.
David and Jean have almost paid off the mortgage on their family home. They recently inherited €500,000 from Jean’s mother. In addition to their own savings, they now have over €1m to invest.
The Clients’ Objectives
As they have a considerable sum of money to invest, David & Jean wanted to carefully consider a broad range of investment options. They were thinking about buying a rental property. However, neither of them wants the hassle and stress of being a landlord. They have also noted the amount of tax that they already pay. The couple were reassured by the focus at Everlake that we place on achieving tax efficient solutions.
The couple’s priorities firmly include giving their children the best possible start in life. They wish to provide them with a college education and assistance onto the housing ladder.
David and Jean met with their bank which provided them with some investment options through a range of life assurance products. They wanted a second opinion on these.
The Everlake Approach
David and Jean had important building blocks in place in relation to their personal finances. After careful analysis, we were satisfied that they had adequate financial protection products in place. These were both through David’s employment and their own personal insurances. They are also in a very healthy position in relation to pension planning.
In relation to their money available for investing, we recommended that they should start by paying off their remaining mortgage debt. This provided them with a tax-free and risk-free investment return. It made far more sense than the life assurance product suggested by the bank which contained investment risk and would be exposed to exit tax of 41% on any returns.
We further recommended that they make full use of Jean’s allowances and exemptions from tax. With the assets remaining after clearing their mortgage, we suggested that they establish an investment portfolio in Jean’s sole name. Avoiding life assurance company products or investment funds, we recommended building a portfolio of Non-EU Exchange Traded Funds (ETFs), which will provide a passive investment income.
This approach takes advantage of Jean’s personal tax allowances and exemptions from USC. Furthermore, if the dividend income exceeds €5,000 pa, it will also result in Jean continuing to earn additional State Pension credits. These credits had stopped now that the children are over 14 years of age. This investment approach is something Everlake can uniquely facilitate through our discretionary investment service.
David and Jean take comfort from the fact that they have sufficient financial protection in place, no matter what hand life deals them in the future. They also welcome the fact that they are now debt free and that we confirmed their retirement planning is on solid ground.
In relation to their core objectives, they were previously somewhat unaware of the close interaction between tax planning and investing. As a result, they were pleasantly surprised at the tax efficiency of the solutions available to them, while not impacting the growth potential of their investments.
They’ve avoided the hassle of being reluctant landlords. In addition, they are now fully confident that they will be able to support their children financially and give them the best possible opportunities in life.
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