It was great speaking to you last Thursday. I hope that you found it informative. I have concluded the following report from the information you gave me on the phone. Please kindly review it and feel free to let me know if you have any questions.
Personal Circumstances
According to our conversation on the phone, you have stated that you are presently semi-retired, currently running a recruitment company, although presently have no substantial overheads through the ongoing operations. You are to date residing in Hua Hin with no finical debt nor major assets back in the U.K.
You have no intention to return to the U.K.
Your objective is to fund your lifestyle in Hua Hin from your State and MET police pension, and aim to fund it with £500,000 in 15-year time for a retirement pot.
You presently have no family member financial commitments; you have 33 years state pension from mainly comprehending of your MET Police time.
Following our discussion, I aid you to fully review your circumstances above in light of full disclosure that the information given is relevant.
Financial Goals
You aim to protect the wealth that you have accumulated, and add to your retirement pot for 15 years with £10,000-£15,000 annually to aim to get a lump sum of £300,000-400,000, with an additional £100,000 top up from your inheritance.
You stated that your current financial assets are:
– Your wealth back in the U.K. and the pension
– You presently have no liabilities.
I will aim to provide you the following financial and protection goals
- Put together a balanced growth portfolio in an offshore jurisdiction for your pension plan ensuring that it is tax efficient. I will clearly outlay, the goals, the fund selection and the objective of the portfolio to meet your moderate risk level and desired outcome.
- Set up an option to reach max state pension contributions.
- Look at reducing U.K. IHT, when your assets is over the £325,000 Nil-Rate Band by investing in an offshore bond and set up protection element in terms of a Will.
Assets Management Plan
- You can leave up to £85,000 in the U.K. banks as the banks protect your money to that amount.
But as stated that you have no plan to go back, it would be an option to consider moving everything outside of the U.K.
Key Financial Elements and Options
Offshore Bond Proposal of UK Assets
According to the information gathered last week, you currently have £10,000-£15,000~ liquid per year to fund an additional private offshore pension.
You aim to move your non-essential lifestyle income from the business into an offshore pension fund to fund your retirement and thus doing it offshore to reduce capital gains tax and then (when above the limit) reduce the IHT tax.
Furthermore, you intend to withdraw on your assets after 15 years so we will look at annuity options after the period to add for your retirement income.
As having reviewed the options, I would recommend an offshore investment pension plan. That is backed up by the full amount by a custodian, and in a secure location that is flexible to withdraw on assets if needed.
Why has it been selected?
The capital gains tax currently, stands at £12,000 2020/2021 on tax-free allowance in the U.K. and the 10-20% on anything over this amount.
As you are looking for tax efficiency with an offshore location, which will not be subject to the capital gains tax on the assets the offshore Investment Bond is a feasible option. Here are the reasons:
The protection
As it is based offshore it is backed to the full amount by the government and the custodian while the U.K. FSCS will currently only protect up to £85,000.
The flexibility
You stated that it is most likely that you will not need withdrawal option but you would like the option to withdraw 10% of the fund at any time. This plan allows liquidity after a period of 18 months.
The stability
The Company, Investor Trust platform has over 2 billion USD under management. The assets are fully backed by a custodian in a stable offshore jurisdiction. It will not be subject to IHT (if put in wrapper) when over the £325,000 limit.
A beneficiary option
You could put a beneficiary. In an eventuality of death, will receive 101% of the portfolio value.
Fund Selection
I use the following criteria to select your funds based on your preferences:
1) Using two independent rating agencies (S&P and Morningstar) to ensure that all the funds are 4 stars of the majority of the conservative portfolio (5 stars being the max with both rating agency) and no fund is under 3 stars.
2) Ensuring that each of the major funds has at least 100 million USD equity and every fund is from major investment fund that is suitably accredited.
3) Ensuring that the average expectation of each fund in line with its objective for over the last 5 years
About the Rating Agencies used
- Morningstar
Morningstar is a leading global provider of independent investment research, conducted by a team of over 100 fund analysts worldwide. Morningstar is highly regarded by investment experts for its in-depth research which can help you assess different funds and their potential role in your investment portfolio. Their analysts employ a rigorous appraisal procedure which is reviewed on a regular basis.
They are highly experienced and recognized in the market as providing a clear focus for the investor through the quality, independence and depth of their research. Morningstar rates investments from one to five stars based on how well they’ve performed in comparison to similar investments, after adjusting for risk and accounting for all relevant sales charges.
- S&P
Standard & Poor’s (S&P) is a leading index provider and data source of independent credit ratings. It is also the provider of the popular S&P 500 Index.
Financial Planning Guideline
Table 1 shows the financial planning U.K. guideline for portfolio based on your aspirations and timeframe. We will use this table as a template to modify accordingly
TABLE 1
| Conservative | Moderate | Balanced | Growth | High Growth | |
| Time Frame | 2 years | 3 years | 5 years | 7 years | 10 years + |
| Return Objective | CPI+ 1% | CPI + 2.5% | CPI + 3.5% | CPI + 5% | CPI + 6% |
| Int. Equities | 21% | 38% | 44% | 53% | 55% |
| Int. Properties | 5% | 10% | 14% | 17% | 20% |
| Fixed Interest | 50% | 38% | 26% | 13% | 0% |
| Alternatives | 0% | 0% | 10% | 15% | 25% |
| Cash | 24% | 14% | 6% | 2% | 0% |
(CPI is the level of inflation that currently stands at 2%).
Option 1: Growth Portfolio
Balanced Growth Portfolio Model:
As you stated to me that your main aim was to achieve a stable 5-7% growth with moderate risk. I have derived a basic portfolio to help achieve this. It is stable and has access to few products available in the U.K. This fund will aim to achieve a 6-7% growth per year while being stable. This portfolio would be ranked as level 6 on a risk scale (out of 10 being highest).
With a 40% base element of fixed income, that will offer 100% protection, low risk, and a steady income higher than what you get in a bank for minimum of 3.5% and maximum of 6% per year.
Then driven a major stable global equity using the selection criteria above that will aim for absolute returns of 5%+
Also, with both models (more the growth as exposed to equity funds) the use of dollar cost averaging, it will use the compound effect (seen in Page 8). With the markets presently, at a low due to the current economic situation (due to COVID-19) have selected growth options over the long term prospective. And would be recommend using the current fall in market to an advantage for the long term effect.
(I have put links to all the funds in the Appendix).
| Growth Portfolio ISIN | SECTOR | INVESTMENT MANAGER | INVESTMENT NAME | PERCENTAGE % | Performance 2019(%) | Morning Star Rating |
| LU0552385295 | Global large cap blend equities | Morgan Stanley | MS Global opportunity GBP | 30 | 34.82 | 5 |
| LU0264739185 | Property indirect global | Henderson | HEN Horizon Global Property GBP | 10 | 13.75 | 4 |
| Fixed Assets | Investor Trust | Investors trust 3.5%- 6% fixed income 15 year return | 40 | N/A | NA | |
| IE0031442068 | U.S Equity ETF | iShares | iShares S&P 500 GBP | 18 | 12.09 | 4 |
| Cash | Cash | Cash Access | 2 |
Option 2: Balanced Portfolio
The balanced portfolio is more focused towards fixed interest as a protection against the higher volatility of equities. This would go 5 on the risk scale and look for 5% net a year. The portfolio is also derived from the guidelines and modified for your specific situation as wanting 5% a year, a higher proportion is fixed income and therefor stable and low to no risk with the remaining in equities for a growth and property for diversification.
| Growth Portfolio ISIN | SECTOR | INVESTMENT MANAGER | INVESTMENT NAME | PERCENTAGE % | Performance 2019(%) | Morning Star Rating |
| LU0552385295 | Global large cap blend equities | Morgan Stanley | MS Global opportunity GBP | 25 | 34.82 | 5 |
| LU0264739185 | Property indirect global | Henderson | HEN Horizon Global Property GBP | 15 | 13.75 | 4 |
| Fixed Assets | Investor Trust | Investors trust 3.5%- 6% fixed income 15 year return | 50 | N/A | NA | |
| IE0031442068 | U.S Equity ETF | iShares | iShares S&P 500 GBP | 8 | 12.09 | 4 |
| Cash | Cash | Cash Access | 2 |
Outcome 1 – Growth Portfolio outcome
From the growth portfolio on a basis of average return 7% total per year, it shows an increase as follows:
| Year | Initial Investment | Additional Interest | Balance |
| 1 | £15,000 (per year) | £1,050.00 | £16,050.00 |
| 2 | £2,173.50 | £33,223.50 | |
| 3 | £3,375.64 | £51,599.14 | |
| 4 | £4,661.94 | £71,261.09 | |
| 5 | £6,038.28 | £92,299.36 | |
| 6 | £7,510.96 | £114,810.32 | |
| 7 | £9,086.72 | £138,897.04 | |
| 8 | £10,772.79 | £164,669.83 | |
| 9 | £12,575.89 | £192,669.83 | |
| 10 | £14,507.27 | £221,753.99 | |
| 11 | £16,572.78 | £253,326.77 | |
| 12 | £18,782.78 | £287,109.64 | |
| 13 | £21,147.68 | £323,257.32 | |
| 14 | £23,678.01 | £361,935.33 | |
| 15 | £26,385.47 | £403,320.80 |
Outcome 2 Balanced Portfolio
From the balanced portfolio on a basis of average return 5% per year, it shows an increase as follows:
| Year | Initial Investment | Additional Interest | Balance |
| 1 | £15,000 (per year) | £750 | £15,750 |
| 2 | £15,537.50 | £32,287.50 | |
| 3 | £2,364.38 | £49,551.68 | |
| 4 | £3,233.59 | £67,884.47 | |
| 5 | £4,144.22 | £87,028.69 | |
| 6 | £5,101.43 | £107,130.13 | |
| 7 | £6,106.51 | £128,236.63 | |
| 8 | £7,161.83 | £150,398.46 | |
| 9 | £8,269.92 | £173,668.39 | |
| 10 | £9,433.42 | £198,101.81 | |
| 11 | £10,655.09 | £223,756.90 | |
| 12 | £11,937.84 | £250,694.74 | |
| 13 | £13,284.74 | £278,979.48 | |
| 14 | £14,698.97 | £308,678.45 | |
| 15 | £55,337.62 | £339,862.38 |
Conclusion of the Fund Selection
- With a balanced approach guided by the guidelines and adjusted for your preferences, the portfolio for both options would give a diverse element of asset classes and sectors (equities), geographical locations (fixed interest, equities).
- The chosen fund is located offshore so it would mitigate against U.K. capital gains.
- The ability when the funds are offshore to wrap in an offshore trust to mitigate IHT.
- It is backed by large corporate banks as a custodian.
- Ability to have a beneficiary.
Trust
As you have stated one of the main reasons for moving assets offshore is to reduce the U.K. capital tax. Besides investing in offshore bonds, you can also reduce the U.K. Inheritance Tax on worldwide assets to efficiently mitigate IHT tax allowance in the U.K. currently stands at £325,000. Your current assets at the conclusion of the term will exceed this amount, therefore we will look into options to reduce the tax when it becomes relevant.
With the assets in an offshore bond, we will look at a range of trust options and gift options that you see suitable in appropriate time.
| Assets | Current Value GBP |
| Assets in the offshore bond after 15 years (5% growth) | 339,862~ |
| Assets by inheritance | 100,000~ |
| Rate over the IHT tax limit | 114,862 |
| Amount taxed by UK IHT | 45,944.80 |
Overview Action Plan
Other Recommendations
Will
I would highly recommend that you update the Will once everything is implemented.
State pension
https://www.gov.uk/new-state-pension/living-and-working-overseas
The state pension can be added by this link and will need 35 years for the full amount and go though this with you.
Appendix
Henderson Global Technology
https://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F00000NAG6&tab=1
Henderson Global Property
https://www.morningstarfunds.ie/ie/funds/snapshot/snapshot.aspx?id=F0000000IZ
Ishare S and P
https://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000UGYE
