Money Makeover ‘Can my wife afford care if I die before her?’

Recently diagnosed with cancer, John Parker wants to make sure his spouse is protected financially. By Sam Benstead

Being diagnosed with cancer starts a chain of emotional and physical challenges. It also brings financial ones. For John Parker, an 80- year- old retired doctor, the most important consideration is whether his wife will be supported financially if he passes away before her.

Mr Parker, who asked to speak under a pseudonym, has chronic lymphocytic leukaemia. Although it does not yet require treatment, the prognosis implies he will die before his 77-year-old wife, who is in good health.

“I want to know that if I die before her, which I expect to happen, she will be prepared financially and will be able to move into a care home if she needs to,” he said.

Mr Parker and his wife live in a £1m flat with no mortgage. He is in the process of selling a rental property for £715,000, which he acquired 30 years ago for £90,000, and wants to minimise his capital gains tax bill. The property currently generates an income of £19,000 a year.

He has a Sipp worth £336,000, of which £57,000 is in cash. He has not started to take income from this. His NHS pension pays £12,000 a year and he gets a £6,000-a-year state pension, as well as £2,500 from another private pension.

Mrs Parker has a state pension worth £3,000 a year and a private pension worth £2,000 a year.

Together they have £ 500,000 tucked away in Isas, from which they take income at a 3.5pc yield worth £17,500 a year. ar. The bulk of the money is invested ested in dividendpaying British sh stock funds, with some money oney in international shares and bonds. They also have £ 80,000 0,000 in savings accounts. .

Mr Parker and his wife spend about t £ 4,000 a month, adding ing up to £48,000 a year. ar.

“The o n nly ly major expense se I have coming ng up is £30,000 0 for a new w motor home. We love to t r ave l around the worl d in

A retired doctor and his wife, who enjoy travelling in a motor home, need help reducing tax on a property sale it, particularly to music festivals,” Mr Parker said.

“I have never used a financial adviser, I have decided where to invest myself.

“I want help reviewing my investments, so I can plan to pass on my wealth to my wife and limit the amount of CGT we will pay on the property we are selling.

“I am considering using an Enterprise Investment Scheme to mitigate this tax bill.”

Amyr Rocha Lima

Partner at Holland Hahn & Wills LLP, a financial planning firm: CGT is paid on any profit made above the annual tax-free allowance, which this year is set at £ 12,300, having increased from £12,000 last year.

As the rental property is owned jointly, they will have two CGT allowances to use. This should leave them with an estimated £169,000 CGT bill

‘I have never used an adviser. I want help reviewing my holdings so I can pass on wealth’

arising from the sale of their rental property. However, their secured income from their defined-benefit pensions – along with income from their investments – can produce enough cash flow to cater for their cost of living and m maintain Mrs Parker’s standard of living beyond her 100th birthday. With this in mind, I would not recommend using an EIS to reduce the CGT bu burden. Firstly, they would ha have to invest 100pc of the capital gain from the p property in order to defe defer the whole CGT bill, an and it would only be def deferred until they sold the EIS shares. This would affe affect how easily they co could access their m money. M Moreover, wh while it may se seem attract tive to have no CGT to pay on the gains ( if the investment is held for at least three years), EIS deal pipelines are around six to 18 months. Therefore, they need to consider how long it would take just to get their money invested into the EIS before the three-year clock started ticking.

Felix Milton

Financial planner at Philip J Milton & Company, a wealth manager: After they have allowed for paying the CGT bill, the couple will have approximately £550,000 left to invest.

They should first ensure their £20,000 a year Isa allowances are used. They could then look to invest into a General Investment Account in Mrs Parker’s name and buy a broad spread of investment trusts with good dividend yields and discounts to the underlying net asset values. City of London Investment Trust yields about 5.2pc and is a good option for the couple.

Mr and Mrs Parker could comfortably generate an average dividend yield of 4pc with a broad basket of income funds. This would generate £22,000 a year from the money raised from the property sale, which more than replaces the lost income of £19,000 a year.

If Mr Parker passes away before his wife, her income will increase to £12,250 from guaranteed sources. She would inherit 50pc of Mr Parker’s NHS pension (£ 6,000), 50pc of his other pension (£1,250), and have £5,000 of her own pensions.

This, combined with the investment income from the property sale, takes her income to £34,250. If you add on the income from the Isas – £17,500 at its current 3.5pc yield – Mrs Parker should expect to have about £52,000 a year.

She also would be a beneficiary of Mr Parker’s Sipp. Assuming no further growth, and that the 25pc tax-free cash is taken, this would generate an income of about £10,000 before tax.

With the average cost of nursing care in Britain about £ 50,000 a year, she will comfortably be able to generate a sufficient income from her invested resources to fully meet any care needs that arise.