Case Study - The IT Contractor II

Background

• Client is in his mid 30’s
• Single with no children
• IT contractor, working through his own limited company

Challenges

• Insufficient insurance for a self-employed contractor.
• Had a large cash lump sum in business and wished to extract it in a tax efficient manner.
• Pays himself a salary and dividends but his billing rate is far greater than the total of his expenses, salary and dividends.
• Client has pensions from previous employment but no real strategy.

What we did

• Created a Financial Plan to give on-going financial direction for the contractor.
• Set up Life Insurance and Critical Illness policy to cover outstanding liability on mortgage. Income Protection policy set up to guarantee income if contractor could not work due to ill health.
• Showed client how to extract money from his company tax efficiently. We explained the trade off between National Insurance, Income Tax and Corporation Tax to create tax efficient investments.
• Utilised pension rules to maximise company contributions.
• New pension set up and incorporated old underperforming pensions. New scheme can be monitored on-line, funds are bought and sold when appropriate and Wealth Matters provide investment bulletin to review funds, every quarter.
• Client still had surplus cash in the business earning little interest, so a Unit Trust was set up in the business. The client could then “sweep” investments into their own ISA or pension when appropriate at no cost to transfer and without the need to disinvest.

The Results

• Client fully protected against any death or ill-health risk.
• Saved client £10,500 lump sum and £6,300 per annum in tax charges through our tax planning strategies.
• New investment strategy improved performance and reduced risk at the same time.
• Created tax efficient saving strategy for clients, further reducing their tax bill.

....because Wealth Matters

The Financial Services Authority does not regulate Will writing, school fees planning, taxation and trust advice, and some aspects of buy to let mortgages, overseas mortgages and commercial mortgages.