lumin news Issue 6 / Autumn 2022

Pensions I Investments I Inheritance & tax planning I Financial protection 

! 

Page 12 

Webinars: Top 

tips to reduce 

your tax burden 

Be better off with expert financial planning Issue 6 I Autumn 2022 

INSIGHTS 

AT A GLANCE 

Tax planning: Offshore 2 

The tax efficiencies of 

offshore bonds 

Pension planning 4 

Watch out for a lifetime 

alllowance excess tax charge 

Tax planning: VCTs/EISs 5 

Venture capital trusts and 

enterprise investment 

schemes explained 

Tax planning: Trusts 5 

Reduce your IHT liabilities 

with a gift and loan trust 

Property6 

Why are more smaller-scale 

landlords opting to sell up? 

Ask our Expert 9 

Questions from our readers 

Investments10 

Advisory vs. discretionary 

Equity release 11 

Unlock cash from your home 

and reduce IHT liabilities 

Webinars12 

Pension and taxes; Equity 

release; Tax-efficient solutions 

for wealthy individuals 

What can you do when you’ve 

used pension and ISA allowances? 

High earners and high-net-worth individuals often exhaust available tax shelters, 

such as pensions and ISAs. But there are a number of less commonly known solutions 

that can provide valuable tax efficiencies for those in this position. 

JOE FISHER 

Financial Planning Manager 

joe.fisher@luminwealth.co.uk 

Phone 01727 893 333 

Pensions and ISAs are the go-to tax-efficient 

wrappers for many savers in the UK, with 

both providing a valuable shelter against 

income tax and capital gains tax. You can 

pay a maximum of £20,000 per year into 

an adult ISA (or £40,000 for a couple). 

The standard pension annual allowance, 

the amount that can be contributed into 

a pension and benefit from tax relief, is 

£40,000. However, high earners see their 

annual allowance reduced by £1 for every 

£2 of adjusted income above a threshold of 

£240,000. The minimum annual allowance 

is £4,000 for those earning over £312,000. 

High earners and/or high-net-worth 

individuals already maxing out allowances 

may want to – or need to – consider additional 

solutions for implementing an effective 

tax planning and wealth management 

strategy. Solutions can include: 

f Offshore bonds are investment vehicles 

that can provide valuable income tax and 

inheritance tax efficiencies (see page 2). 

f Venture capital trusts and enterprise 

investment schemes (see page 5). 

f A gift and loan trust can help reduce 

inheritance tax liabilities, while retaining 

access to the original capital (see page 5). 

Retirement 

Property 

Estate planning 

Tax-efficient use of 

your retirement assets 

Helping children onto 

the property ladder 

Cutting IHT liabilities 

with Business Relief 

Lumin Wealth is a leading 

firm of Chartered Financial 

Planners with offices in 

St. Albans and London. We 

offer independent financial 

advice and discretionary 

fund management. 

Having done the hard work 

of accumulating assets, it’s 

vital to keep your eye on the 

ball during your retirement 

journey. The income tax burden 

is usually substantially 

reduced, but it’s important 

to draw on your assets in the 

most-tax efficient manner. 

Prudent planning can save 

you thousands of pounds in 

the long run. Page 3 

First-time buyers are increasingly 

struggling to get 

onto the first rung of the 

property ladder, in light of 

soaring house prices and the 

cost of living crisis. But a 

number of options are available 

to parents who wish to 

give their children a helping 

hand, including gifting 

strategies, parental loans, 

and junior ISAs. Page 7 

Many people put off estate 

planning, due to the emotional 

difficulties involved. 

For those with large estates 

and a shorter planning horizon, 

Business Relief can be a 

valuable investment solution 

that allows you to retain control 

of – and access to – capital, 

while significantly reducing 

inheritance tax liabilities 

on your estate. Page 8 

lumin news is a periodic publication Circulation: 25,000 copies Publisher: Lumin Wealth Ltd, 5 Sandridge Park, St Albans, AL3 6PH, company no. 03381115. Lumin Wealth Ltd 

is authorised and regulated by the Financial Conduct Authority (reg. number 775068) Editorial: Markus Graf, William Monroe Enquiries and address changes: Phone 

01727 893 333 or info@luminwealth.co.uk Copyright: No part of this publication may be reproduced or transmitted in any form without the prior permission of the editor.

Page 2 lumin news 6 / autumn 2022 

The tax efficiencies of offshore bonds 

Offshore bonds can be a valuable tax planning tool for high earners who regularly 

exhaust their annual pension and ISA allowances. They also have a number of 

estate planning advantages that can help to reduce inheritance tax bills. 

JON HUSSEY 

Financial Planning Director 

jon.hussey@luminwealth.co.uk 

Phone 01727 893 333 

Investments within an offshore 

bond are not subject 

to immediate capital gains 

or income tax charges. If 

you are a high-net-worth 

individual and regularly 

exhaust the standard pension 

annual allowance of 

£40,000 per year (this is 

reduced if your adjusted 

annual earnings are 

above £240,000) and your 

£20,000 annual ISA allowance 

then offshore bonds 

can be a useful, and tax-efficient, 

investment tool. 

What is an 

offshore bond? 

Offshore bonds, or international 

bonds, are tax-efficient 

investment vehicles. 

You can typically invest in a 

wide range of funds covering 

assets including equities, 

property, and fixed-interest 

securities. Investments are 

held in tax-efficient jurisdictions 

outside of the UK. 

Income and capital 

gains tax efficiencies 

Investments within an offshore 

bond are not subject 

to annual capital gains tax 

or income tax, so gains can 

‘roll up’ without any immediate 

tax charges applying. 

You only pay income tax on 

the chargeable gain when 

you encash the bond. Timing 

is important. Higher 

and additional rate taxpayers 

can make significant tax 

savings if they expect to be 

a basic rate taxpayer when 

they encash the bond. 

The table below summarises 

the tax savings you 

could make when encashing 

a bond worth £740,000 as 

a basic rate taxpayer. Savers 

can also benefit from ‘top 

slice relief’. This allows you 

to divide the chargeable 

gain by the number of years 

it has been active, to keep 

you within basic/higher rate 

Tax charges when encashing an offshore 

investment bond 

Assumptions: Investment bond encashed after 10 years; figures rounded. 

Original investment £500,000 

Growth per annum 4% 

Value in 10 years’ time £740,000 

Gain £240,000 

Tax at basic rate £48,000 

Tax at higher rate £96,000 

Tax at additional rate £108,000 

Encashment timing 

attractive when: 

• Lower rate 

taxpayer 

• Residency in 

favourable 

non-UK location 

tax bands for income tax 

purposes. Offshore bonds 

may provide a more tax-favourable 

solution compared 

to general investment accounts, 

where income tax 

and capital gains tax applies 

to gains in the year 

they arise. Any dividends 

received within the offshore 

bond may be subject to 

withholding tax and cannot 

be reclaimed. 

Deferred tax 

You can withdraw up to 5% 

per annum of the original investment 

amount each year 

and see tax deferred on this 

sum. This 5% allowance also 

accumulates, eg. after two 

years, you can draw 10% of 

the original investment with 

tax deferred on this amount. 

Withdrawals above 5% may 

attract income tax. 

Mitigating IHT 

Many offshore investment 

bonds consist of segments 

that can be gifted/assigned 

to designated beneficiaries 

in a tax-efficient manner. 

You can assign segments of 

the bond to beneficiaries 

without incurring any immediate 

tax liability. If you 

survive for seven years it is 

considered outside of the 

estate, and is not subject to 

inheritance tax (IHT). 

Likewise trusts can be a 

useful IHT planning tool. 

Investment growth occurs 

outside of the estate, which 

can result in substantial tax 

savings over time. If a trust 

invests in an offshore bond 

then investment income or 

capital gains can be ‘rolled 

up’ on a tax-deferred basis. 

The beneficiary can also receive 

5% of the original investment 

each year, without 

a tax charge applying. 

Other considerations 

Offshore bonds won’t be 

the right solution for every 

investor. You should have a 

long-term investment horizon, 

and charging structures 

can be complex, so it’s important 

to carefully examine 

provider fees and total costs. 

But they can form a valuable 

part of an overall investment 

strategy, alongside annual 

pension and ISA contributions. 

Clear planning and 

tax-efficient management 

of investments can lead to 

potentially large tax savings. 

Lumin provides a 

range of integrated investment 

management and 

financial planning solutions. 

Lumin conducts extensive 

due diligence on all selected 

products. To find out more, 

call 03300 564 446. 

Important: Past performance 

is not a guide to future performance. 

Tax treatment depends 

on your individual circumstances 

and rules may change. 

FACTSHEET/WEBINAR 

Tax-efficient solutions 

for wealthy 

individuals 

Request a free factsheet or 

join our webinar (see page 

12). Email info@luminwealth.co.uk, 

or call Jon 

Hussey on 03300 564 446

lumin news 6 / autumn 2022 Page 3 

Make sure you’re pulling on the 

correct tax levers in retirement 

MY TIP 

Most people have more leeway to influence the amount and timing of taxes in 

retirement, compared to when they are working. Clear financial planning can 

save (tens of) thousands of pounds in unnecessary tax bills. 

FIONA READ 

Senior Financial Consultant 

fiona.read@luminwealth.co.uk 

Phone 01727 893 333 

How will your tax situation 

change once you retire? It’s 

important not to take your 

eye off the ball at this crucial 

juncture. Here we highlight 

the key tax levers you 

can pull to ensure you’re 

drawing on your assets in a 

tax-efficient manner. 

Income tax 

Other than pension contributions, 

employees have 

limited options to reduce 

income tax bills. For a minority, 

venture capital trusts 

or enterprise investment 

schemes may be an attractive 

option, as they benefit from 

income tax relief. However, 

these investments are highrisk. 

Upon retirement, the 

income tax burden usually 

falls and, with the right 

planning and decisions, you 

can significantly improve 

overall tax outcomes. 

Capital withdrawal 

order 

When it comes to funding 

your retirement, the 

order of drawing on assets 

has a substantial impact on 

tax bills, as the illustration 

The capital withdrawal order impacts total 

income tax bills over a planning horizon 

Example: Total income tax liabilities for a couple over a planning 

horizon; both aged 58; total investable assets of £1,700,000: £400,000 

in each ISA, £600,000 and £200,000 in pension pots, £100,000 cash; 

figures rounded. 

Pension before ISA 

£484,000 £484,000 £484,000 

shows. For many, it makes 

sense to withdraw capital 

from ISAs before dipping 

into pensions, as pension 

withdrawals beyond the 

25% tax-free cash lump sum 

are subject to income tax. A 

cashflow plan can help you 

map out your journey and 

hone in on key decisions. 

Capital gains tax 

Many investors accumulate 

deferred capital gains tax 

(CGT) liabilities. Sometimes 

these stem from inherited 

shares and subsequent 

gains on market value 

from the time of death. Disciplined 

‘harvesting’ makes 

the most of the annual taxfree 

capital gains allowance 

of £12,300. 

Lifetime allowance 

The amount you can normally 

build up in your pension is 

limited to £1,073,100. This 

ceiling is called the lifetime 

ISA before pension 

£206,000 

£325,000 

£443,000 

Total until age 85 Total until age 90 Total until age 95 

allowance. If you take pension 

benefits or reach age 75, 

your pension funds are tested 

against the threshold, and exceeding 

amounts are subject 

to a 25% or 55% tax charge. 

Early planning can ensure 

you take the best course of 

action at the right time. 

Inheritance planning 

Inheritance tax (IHT) of 

40% above the tax-free 

threshold can significantly 

reduce the amount of your 

estate that is passed on to 

beneficiaries. Some assets, 

such as pensions, are outside 

your estate, so are not 

subject to IHT. Early planning 

can leave your loved 

ones substantially better off. 

Would you like to 

assess your tax planning 

potential? Call 03300 

564 446 to book a free initial 

meeting with a Lumin 

expert. 

MARTIN COTTER 

Managing Director of 

Lumin Group 

Making sure your pension 

contributions come from 

the most tax-efficient source 

can help claw back thousands 

in unnecessary taxes. 

Most people are aware that 

contributions you make into 

your pension are deductible 

against income tax. However, 

although income tax 

can be reclaimed on personal 

pension contributions, no 

such exemption applies for 

National Insurance. 

However, when an 

employer makes a pension 

contribution it is considered 

a deductible business 

expense. This means the 

money goes straight from 

the company into the employee’s 

pension pot without 

any National Insurance 

deductions. These expenses 

can reduce the profits that 

are assessed for corporation 

tax, meaning that the company 

can receive tax relief. 

My tip: Significant 

National Insurance savings 

can be realised both 

for the employee and the 

company when pension 

contributions are paid by 

the employer. If you own 

the company then there is 

often scope to make even 

larger contributions, which 

can be timed to align with 

the company year-end for 

further tax efficiency.


Learn how the pension lifetime allowance 

tax test works 

Many people leave their personal pensions untouched, but are unaware that there 

is an automatic tax test at the age of 75. Likewise, there is a secondary test at 75 if 

you have accessed your pension funds earlier. 

JAMES DELANEY 

Financial Consultant 

james.delaney@luminwealth.co.uk 

Phone 02039 887 788 

The maximum value you 

can build up in your 

pension pot is currently 

£1,073,100. More people 

are expected to exceed this 

‘lifetime allowance’, as the 

threshold has been frozen 

until April 2026. You should 

weigh up your choices carefully 

if you have large pension 

savings – particularly if 

you are continuing to make 

contributions – and watch 

out for the mandatory test 

event at age 75. 

Test at time benefits 

are taken, or at age 75 

If you have left your pension 

plan(s) untouched, 

your unused pension funds 

will be tested against the 

lifetime allowance ceiling 

Watch out for an excess tax charge on your 

drawdown account 

Assumptions: Maximum cash lump sum (25%) of pension plan worth 

£1,000,000 taken in 2017/18 at age 67; remainder (£750,000) designated 

to drawdown; 4% investment growth p.a. (net of fees); figures rounded. 

Market value of 

pension at age 75 

Pension value 

when designated 

to drawdown at 67 

at the time you take benefits 

before age 75, or when 

you reach 75. The lifetime 

allowance should adjust in 

line with inflation again 

from the 2026/27 tax year. 

Secondary test 

at age 75 

Some pension plan holders 

choose to take their tax-free 

cash lump sum (normally 

25%, or up to £268,275 

if the plan value is at or 

above the current lifetime 

allowance threshold of 

Scenario 1: 

No income 

taken 

Scenario 2: 

£30,000 income 

per year 

£1,020,000 £750,000 

£750,000 £750,000 

Difference £270,000 – 

25% lifetime allowance 

excess tax charge 

How does the secondary test at age 75 work? 

Pension 

plan 

market 

value 

Lifetime 

allowance 

tax test 

Drawdown 

funds (75%) 

2 nd lifetime 

allowance test 

at age 75 

Tax-free 

cash (25%) 

£67,500 £0 

£1,073,100) and assign the 

remainder to a drawdown 

account, which allows you 

to take flexible income 

as and when you need it. 

However, it is not common 

knowledge that these drawdown 

funds face a second 

test at age 75. 

Case study 

In the example above, a 

67-year-old had a pension 

worth £1,000,000 in 

2017/18. At that time, the 

lifetime allowance was also 

£1,000,000, so 100% of 

the allowance was used up. 

If no income is taken from 

the plan, and the drawdown 

funds benefit from investment 

growth, the market 

value of the plan will be 

higher at age 75 compared 

to when the funds were designated 

to drawdown. As 

the example illustrates, this 

would result in a significant 

tax charge at age 75 (25% 

of £270,000). 

This is a simplified example. 

We often encounter 

clients with more than one 

private pension, with different 

pots accessed at different 

times. Independent 

experts can help to provide 

a clear picture and strategy. 

Tax treatment 

Consider broader tax consequences 

when assessing 

your pension options. Pensions, 

including drawdown 

funds, feature outside of the 

estate for inheritance tax 

(IHT) purposes. Although 

the 25% cash lump sum can 

be taken without an immediate 

tax charge applying, it 

forms part of your estate for 

IHT purposes, and also becomes 

liable for income and 

capital gains taxes. 

Do you need pension 

planning to help you 

make well-informed financial 

decisions? The lifetime 

allowance is a complicated 

area of tax planning, but an 

expert can help you understand 

your options and assess 

whether you can take 

action to mitigate tax liabilities. 

Call 03300 564 446 to 

learn more. 


Overcoming lifetime 

allowance 

challenges 




or call the 

team on 03300 564 446


Tax-efficient solutions for high 

earners and wealthy individuals 

Venture capital trusts and enterprise investment schemes can form a very useful 

part of a tax planning strategy for high-net-worth individuals. Here we outline 

some of the main tax advantages. 


Tax-efficient solutions 

for wealthy 

individuals 




or call the 

team on 03300 564 446 

If you’re a high-net-worth 

individual and regularly 

exhaust your annual pension 

and ISA allowances 

you may wish to explore 

additional tax-efficient investment 

solutions as part 

of a cohesive investment 

plan. Venture capital trusts 

(VCTs) and enterprise investment 

schemes (EISs) 

can be attractive solutions 

for those looking to achieve 

tax efficiencies. 

Venture capital trusts 

VCTs provide a number of 

tax benefits, including income 

tax relief of 30% of the 

amount invested, assuming 

the VCT shares are held for 

at least five years, and tax-free 

dividends and capital gains. 

Enterprise investment 

schemes 

EISs also allow you to claim 

income tax relief in the year 

the investment is made. 

There is also a capital gains 

tax deferral option, providing 

that the investment is 

made up to one year before 

making the capital gain, or 

three years afterwards. 

VCT vs. EIS – Simplified comparison 

Benefit VCT EIS 

For deferral relief, it’s the 

gain not the proceeds of sale 

that should be invested. In 

order for the deferred gain to 

be granted a number of criteria 

must be met. A deferred 

gain is charged at the applicable 

CGT rate when sold 

after the initial investment 

period. There is an option to 

defer the gain by reinvesting 

Tax-free capital gains Yes Yes, after 3 years 

Income tax relief 30% 30% 

Minimum holding period 

for income tax relief 

5 years 3 years 

Tax-free dividends Yes No 

IHT relief No Yes, after holding 

for two years 

into a new EIS. If the EIS 

shares are held at the point of 

death then the deferred gain 

will be eliminated. 

Key considerations 

VCTs and EISs offer unique 

opportunities but are complex 

and high-risk investments, 

so you should ensure 

you fully understand them. 

An independent financial 

adviser can explain the various 

implications and risks. 

Lumin’s Client Solutions 

Committee has 

conducted extensive due 

diligence to select our VCT 

and EIS product solutions 

partners. To find out more, 

call 03300 564 446. 

Reducing inheritance tax liabilities with a gift and loan trust 

Gift and loan trusts allow 

you to implement a number 

of tax-efficient opportunities. 

You can retain control 

of the original invested capital 

and draw an ‘income’ 

from this investment. This 

is a suitable solution for 

someone who wants to start 

inheritance tax (IHT) planning, 

while retaining access 

to the original capital. If 

the gift and loan trust is set 

up in an offshore structure, 

such as an investment bond 

(see page two for more on 

offshore bonds) then investment 

growth is deferred, 

meaning any investment 

income or capital gains can 

roll up ‘gross’, and no tax returns 

are required each year. 

Negating IHT 

liabilities 

Since a loan is not an outright 

gift, the original loan 

amount remains within your 

estate. However, as the assets 

are held in trust, any investment 

growth falls outside of 

your estate, helping to limit 

potential IHT liabilities for 

your beneficiaries. 

For 20 years, you can withdraw 

up to 5% of the original 

capital each year with 

no immediate tax liability. 

Any unused 5% withdrawals 

accrue. So, for example, 

after a period of three years, 

if you haven’t accessed any 

capital, you can draw 15% 

with no immediate tax 

liability. If you draw an 

amount that exceeds your 

5% withdrawal limit this 

will trigger a chargeable 

event, and there may be a 

tax liability charged to the 

settlor within that tax year. 

Tax efficiencies 

for beneficiaries 

When beneficiaries come to 

draw from the investment 

proceeds they will be taxed 

on the overall gain at their 

highest marginal rate. However, 

beneficiaries are able to 

‘top slice’ the gain if it takes 

them into a higher rate 

band. Top slice relief allows 

you to divide the chargeable 

gain by the number of 

years it has been active, to 

keep you within basic rate 

(or higher rate) bands for 

income tax purposes.


Why are more smaller landlords selling up 

and turning to the stock market? 

UK landlords are increasingly fed up with a greater tax burden, a lengthy eviction 

process, and rising mortgage rates. Plus, many property investors fail to calculate 

a true net yield on their investments. 

SARA MOORE 


sara.moore@luminwealth.co.uk 

Phone 01727 893 333 

Buy-to-let has long been 

popular among investors, 

who are attracted by house 

price growth and regular income. 

However, changes to 

the tax environment, alongside 

falling rental yields and 

higher mortgage costs, are 

forcing more (smaller-scale) 

landlords to sell up. 

Higher tax burden 

Tax changes have lessened 

the appeal of buy-to-let in 

recent years. The ‘wear and 

tear’ allowance was scrapped 

in 2015, a 3% stamp duty 

surcharge was introduced in 

2016, and tax relief on mortgage 

interest was phased 

out from 2017–2020. Now 

only a 20% tax credit remains 

on mortgage costs, 

plus allowable expenses. 

Some areas still benefit from 

more generous tax breaks. 

For example, finance costs 

for fully furnished holiday 

lettings are deductible from 

taxable income, while renta-room 

relief allows owner 

occupiers/tenants to receive 

tax-free rental income up 

to £7,500 when sub-letting 

part of a main home. 

Buy-to-let: Calculate your net yield 

Example: 4.5% gross rental yield on £500,000 investment property; 

3% interest on a £300,000 mortgage (60% loan-to-value ratio); 

10% management costs (+ VAT); higher rate taxpayer. 

£22,500 

Rental 

income 

£2,700 

Letting 

costs 

£7,200 

Mortgage 

costs 

Some larger landlords hold 

properties through a company 

in order to benefit 

from fully tax-deductible 

mortgage interest and preferential 

corporation tax, 

compared to higher personal 

income and capital gains tax 

(CGT) rates. However, this 

is a complex process, with 

potentially higher financing 

costs (on commercial mortgages), 

and CGT and stamp 

duty implications. 

Calculate the net yield 

Many property investors 

fail to account for overall 

costs. In the above example 

of a 4.5% gross yield, 

management, mortgage and 

maintenance costs result in 

a 1.8% net yield. Income 

tax on rental income (minus 

allowable expenses) further 

eats into the equation, resulting 

in 0.5% net yield after 

tax on the property value, or 

£3,375 

Other 

costs 

£9,225 £6,570 

Net yield 

before tax 

Tax 

Net yield 

£2,655 

Net yield 

after tax 

a 1.3% return on £200,000 

equity within the property. 

Holiday lets may attract a 

higher gross yield and tax advantages, 

but also face higher 

management costs and demand 

uncertainties. 

Impact of capital gains 

Rental income does not 

count as relevant UK earnings, 

except where income 

is from furnished holiday 

lettings. This is key, because 

pension contributions are 

normally limited to £40,000 

per tax year, or up to 100% 

of your relevant UK earnings, 

attracting relief at your 

marginal income tax rate. 

The annual CGT exemption 

of £12,300 is much 

easier to ‘harvest’ with a 

liquid investment portfolio. 

If you have held an investment 

property for 10 years 

and sell it, you can only 

claim the allowance for that 

GOOD TO KNOW 

Avoiding extra 

stamp duty upon 

replacement of 

the main residence 

It’s commonly known that 

a 3% stamp duty land tax 

surcharge applies where 

the buyer of a dwelling 

(co-)owns another property 

already. An exemption 

is available if a property 

purchase is intended as a 

replacement of an existing 

main (and only) residence. 

The replacement main 

residence needs to be 

purchased up to three years 

before the disposal of an 

existing main residence (in 

which case a paid surcharge 

can be reclaimed), 

or at any time after the disposal 

of it. Married couples 

are treated as a single unit 

and both partners must 

qualify for the exemption. 

one tax year, while in theory 

you could harvest £123,000 

of capital gains over 10 years 

with an investment account. 

Are you considering 

selling your buy-tolet 

property and wondering 

how else to invest the proceeds? 

Call 03300 564 446 

to discuss your options. 

FACTSHEET 

From buy-to-let 

to stock market 

investor 

Request a free factsheet 

via enclosed response card, 

info@luminwealth.co.uk, 

or call the team on 

03300 564 446


Do you need to help your children 

onto the property ladder? 

Younger people are increasingly struggling to save enough for their first property 

purchase, and house price surges over the past couple of years have made the task 

even harder. How can parents (or grandparents) help? 

KRIS FISHER 

Financial Consultant 

kris.fisher@luminwealth.co.uk 

Phone 02039 887 788 

High house prices and surging 

living costs are making 

it increasingly tough 

for first-time buyers to 

save enough for a deposit. 

Minimum deposits usually 

start at around 10% of a 

property’s value, but many 

first-time buyers pay 15% 

(a higher deposit can secure 

a more favourable mortgage 

rate). Funding a deposit is 

often the biggest obstacle to 

home ownership, particularly 

in the South East. Another 

barrier is affordability. 

Mortgage lenders typically 

only lend up to 4.5 × an applicant’s 

income, and may 

not take all earnings – such 

as bonuses – into account. 

Parents or grandparents 

may be able to provide a 

leg up and help children 

or grandchildren onto the 

property ladder. Here are 

some key considerations: 

Gifting 

You may be able to afford 

gifts on the back of a solid 

financial plan, providing 

funds for a deposit and also 

mitigating inheritance tax 

(IHT) liabilities on your 

estate. This option can be 

especially attractive if you 

have a large estate, given 

that a 40% IHT charge applies 

to assets above your allowances 

(up to £1,000,000 

for married couples/civil 

partners with a family 

home) and exemptions (eg. 

pensions feature outside the 

estate). Gifts don’t face any 

immediate tax and are no 

longer part of the estate for 

IHT purposes if you survive 

for seven years. 

Tip: Draw up a declaration 

of trust to retain ownership 

of the gift and protect 

it if your child splits from a 

partner. Consider how to 

financially compensate other 

children/beneficiaries to 

avoid any potential family 

friction. 

Parental loan 

If you can’t or don’t want 

to gift, you can consider 

lending the money. Any 

debt obligations, including 

a parental loan, need to be 

declared to the mortgage 

lender and repayments 

form part of their affordability 

assessment. Family 

loans are often made interest-free. 

Take into account 

potential tax implications 

on loan interest. 

Tip: A written loan 

agreement provides clarity 

and avoids surprises by covering 

potential events such 

as bankruptcy or divorce. 

See checklist, above right. 

Joint/guarantor 

mortgage 

A parent or family member 

can apply for their income 

to be considered through 

a joint borrower sole proprietor 

mortgage. Second 

(parent) income can increase 

the maximum mortgage 

amount or lower the 

mortgage interest rate. A 

joint borrower – for example, 

a parent with a daughter 

– is jointly liable for the 

mortgage debt if the owner 

(proprietor) fails to meet 

repayment obligations. Sole 

proprietor means the parent 

is not on the deeds and 

won’t be impacted by a 3% 

stamp duty surcharge or 

capital gains tax on second 

homes. 

Tip: Some lenders offer 

guarantor mortgages, where 

you agree to cover the mortgage 

payments if your child 

fails to (as is the case with a 

joint mortgage). 

The ‘snowball effect’ 

Children and young adults 

can start saving towards a 

deposit from an early age. 

You can pay up to £9,000 

annually into a junior ISA 

(for under-18s), which benefits 

from tax-free gains/interest. 

Adults can pay up to 

£20,000 into an ISA annually. 

If you have a long-term 

time horizon and can tolerate 

the ups and downs of financial 

markets, investment 

ISAs offer higher growth 

CHECKLIST 

Loan from parents 

to children 

• Agreement signed in 

writing 

• Interest rate and term 

stated 

• Secured/charge on 

property 

• Repayments 

• Life cover/other insurance 

• Provisions in case of 

bankruptcy/divorce 

• Provisions in the event 

of death (parents or 

borrower) 

potential than cash ISAs or 

general savings accounts. 

Tip: Start the saving 

plan as early as possible, as 

compounding – the ‘snowball 

effect’ – will increase 

the overall pot size. Start 

rolling your child’s snowball 

from the top of the hill, 

rather than halfway down. 

To learn more about 

your options for helping 

children onto the property 

ladder call the Lumin 

team on 03300 564 446. 

Important: As a mortgage 

is secured against your home, 

it may be repossessed if 

you do not keep up with the 

mortgage repayments. 

FACTSHEET 

Helping children 

onto the property 

ladder 





03300 564 446


How to reduce your inheritance 

tax liabilities with Business Relief 

Legacy and succession matters are often pushed down the road and left to a ‘more 

convenient’ date, due to the emotional barriers involved in dealing with the subject. 

When the planning horizon is shorter, Business Relief offers individuals with large 

estates a way of investing that can lower potential IHT liabilities. 

NEVILLE PEREIRA 


neville.pereira@luminwealth.co.uk 

Phone 02039 887 788 

Making lifetime gifts to 

loved ones can be an effective 

estate planning strategy. 

However, gifting comes with 

two major drawbacks. The 

donor must survive for seven 

years (otherwise larger gifts 

still form part of the estate), 

while you also lose control 

over gifted assets. Using a 

trust often involves similar 

disadvantages. Business 

Relief provides access to assets, 

allows you to maintain 

control, and only requires a 

holding period of at least two 

years at the time of death. 

Making use of IHT 

exemptions 

It’s commonly known that 

a married couple with a 

family home can often 

leave up to £1,000,000 free 

from inheritance tax (IHT) 

to children/grandchildren. 

Exemptions are equally important. 

Pensions feature 

outside of the estate for 

IHT purposes, while other 

potentially exempt assets 

include agricultural land, 

stocks quoted on the Alternative 

Investment Market, 

Reducing IHT liabilities with Business Relief 

Assumptions: Married couple with full nil-rate bands available 

(£1,000,000); surviving for a two-year period. 

and Business Relief qualifying 

investments. There is no 

IHT exemption available if 

the Business Relief investment 

is not held at the time 

of death. 

What is Business 

Relief? 

Business Relief was introduced 

in 1976 to allow small 

(family) businesses to be 

passed on through generations 

without facing an IHT 

liability. It has since widened 

in scope and become an incentive 

to boost investment 

in UK businesses. Companies 

need to be private or 

quoted (but not listed on the 

London Stock Exchange) 

and carry out a qualifying 

trade. Mining, investment 

and property companies do 

not typically qualify. 

Inclusion 

in estate? 

Now 

After 

2 years 

Family home Yes £1,000,000 £1,000,000 

Pensions No £1,000,000 £1,000,000 

ISAs Yes £800,000 £300,000 

Savings Yes £200,000 £200,000 

Business relief No 1 – £500,000 

Total wealth £3,000,000 £3,000,000 

Tax-free allowance £1,000,000 £1,000,000 

Taxable estate £1,000,000 £500,000 

Potential IHT liability £400,000 £200,000 

1 After 2 years £200,000 

lower IHT liability 

Potential benefits 

As well as being IHT-exempt 

after two years, control and 

access can be retained. Due 

to the private nature of the 

assets, it may take a number 

of weeks to get your money 

back. The two-year clock 

does not reset if your shares 

are transferred to a spouse 

or civil partner, or if they are 

switched to another qualifying 

investment. No medical 

underwriting is required 

and there are no complex 

legal arrangements. 

Different investment 

solutions 

Business Relief solutions 

invest in a range of tangible 

investments, including infrastructure, 

transport, energy, 

and/or lending to SMEs. 

Businesses usually have 

long-term revenue streams 

and operate in protected 

markets. SME loans typically 

have short maturities and 

liquidity upon repayment. 

While there are different 

solutions across Business Relief 

providers and products, 

investing in small companies 

is risky. You could lose all of 

your allocated capital and 

should have a high risk tolerance, 

at least for this portion 

of your wealth. 

Cutting IHT liabilities 

The example (left) shows 

how a married couple could 

cut their IHT liabilities using 

Business Relief, after surviving 

for a two-year period. 

Costs and charges 

Business Relief products 

come with higher costs than 

mainstream investments, 

due to the greater need for 

providers to conduct due diligence 

on behalf of Business 

Relief owners. Costs should 

be viewed within the context 

of the wider estate planning 

benefits that are delivered. 

Would you like to 

discuss your estate 

planning options? Book a 

complimentary first meeting 

on 03300 564 446. 

FACTSHEET 

Estate planning 

with Business 

Relief 





03300 564 446


Ask our Expert 

Your financial planning questions answered 

Joe Fisher responds to readers’ questions on pensions and tax. Here 

he looks at the family home IHT allowance, pension consolidation, the 

additional spousal ISA subscription, and private residence relief rules. 

JOE FISHER 

Financial Planning Manager 

joe.fisher@luminwealth.co.uk 

Can we use the main residence allowance to 

mitigate the tax bill on our family home? 

Your parents disposed of the family 

home in 2016, before the residential 

nil-rate band was introduced in April 

2017, and moved into care. They 

passed away in 2021. The residential 

nil-rate band now adds up to £175,000 

onto the standard nil-rate band of 

£325,000 per person if the family 

home is passed down to direct descendants. 

This means that a married couple 

could have a combined inheritance taxfree 

allowance of up to £1,000,000, if 

their combined nil-rate band allowances 

have not been eroded by gifting. 

The residential nil-rate band is 

also available when a couple (or individual) 

downsize or cease to own 

a home on or after 8 July 2015 and 

If you sell your own home at a profit, 

the gain is tax-free if it is your sole or 

main property. This is known as private 

residence relief. The capital gains 

tax exemption can be complicated if 

you own multiple properties and/or 

have not lived in your main home for 

long periods during ownership. Certain 

absences are permitted under the 

private residence relief rules. 

Working abroad is one such example, 

provided that you lived in the 

property before and after your absence, 

and you have no other property 

that qualifies for private residence 

relief. There is no limit on the length 

of absence due to time spent working 

abroad. If you own more than one 

corresponding assets are passed onto 

children or grandchildren. 

There is no automatic entitlement 

to this so-called downsizing addition. 

The legal personal representatives 

need to make a claim and nominate 

the property asset disposal to be taken 

into account via form IHT435. The 

claim time limit is usually two years 

after death. 

FACTSHEET 

Top tips on IHT/ 

estate planning 

Request a free factsheet via response 

card, info@luminwealth.co.uk, or 

call Joe Fisher on 03300 564 446 

Do I have to pay capital gains tax on the sale of 

my UK home if I’ve worked abroad for 10 years? 

FACTSHEET 

Top tips on capital 

gains tax 



call Joe Fisher on 03300 564 446 

property that qualifies for private residence 

relief you should elect which 

home will be your main private residence 

within two years of acquiring an 

additional residence. 

Rules around private residence relief 

can be complicated, and I would 

recommend seeking expert advice. For 

official information from gov.uk visit 

https://bit.ly/3QzulmB 

Should I consolidate 

my old pensions? 

Combining multiple pension schemes 

into one ‘mothership’ plan allows you 

to set one ‘master’ investment strategy 

that matches your risk profile and 

retirement goals. Some of your old 

pension plans may also not offer flexiaccess 

drawdown. Consolidating your 

plans into a single scheme that offers 

flexi-access drawdown will enable you 

to access your savings more flexibly. 

However due care should be given 

to existing pension benefits. These 

may include valuable safeguarded benefits 

that would be lost on transfer. 

What happens to my 

deceased spouse’s ISA? 

The full ISA portfolio value can be 

transferred from a deceased spouse 

using the Additional Permitted Subscription 

to a surviving spouse without 

affecting their annual contribution allowance 

of £20,000 per tax year. 

Unlike pensions, which are subject 

to a lifetime allowance ceiling, 

there is no cap or account value limits 

for ISAs. This means that ISAs benefit 

from completely tax-free growth and 

capital withdrawals. The Additional 

Permitted Subscription boosts the 

tax-efficiency of your investments. 

FACTSHEET 

Make the most of 

your ISAs 



call Joe Fisher on 03300 564 446


The advantages of discretionary 

fund management 

A discretionary fund management model can lead to saved time, peace of mind 

and significantly improved financial efficiencies via the timely implementation of 

buy and sell orders. 

COLIN CHAMBERLAIN 


colin.chamberlain@luminwealth.co.uk 

Phone 01727 893 333 

When partnering up with 

an independent financial 

adviser it’s important to 

establish how your investments 

will be managed. 

Advice firms operate two 

modes of investment management: 

advisory, and 

discretionary fund management 

(DFM). Some advice 

firms, which have achieved 

the necessary permissions 

stipulated by the Financial 

Conduct Authority, may 

operate their own in-house 

DFM services. DFM provides 

a number of advantages 

in comparison to an advisory 

model, including more 

timely placement of buy and 

sell orders (financial markets 

can change rapidly), and a 

reduced time burden for clients, 

with no need to manage 

and oversee investments. 

Advisory vs DFM 

An advisory service sees 

your financial adviser make 

recommendations based on 

your specific needs and circumstances, 

but the client 

maintains full control of the 

investments, and remains the 

ultimate decision-maker. A 

DFM service sees the advice 

firm provide similar recommendations, 

but investment 

decisions are made on your 

behalf. Advice firms with 

DFM permissions can implement 

investment changes 

– in line with the pre-defined 

risk profile and investment 

strategy – without consulting 

the client first (with any actions 

taken then reported to 

the client after completion). 

DFM provides significant advantages when compared to 

advisory services 

Advisory 

How does an 

in-house DFM model 

benefit clients? 

The ability to make changes 

to client portfolios without 

prior approval allows trades 

to be executed promptly 

and efficiently. This provides 

a clear benefit amid 

the context of fluctuating – 

and, at times, fast-changing 

– investment markets. 

An in-house DFM 

service provides a number 

of other advantages in 

comparison to an advisory 

service model, including 

more frequent monitoring 

of investments, integrated 

financial planning and investment 

advice, and less 

time involved managing 

and overseeing investments 

for the client. Under some 

DFM models, cost savings 

can be achieved through 

pooling investments across 

clients who have the same 

holdings. 

Discretionary 

Decision-maker Client, with input from adviser Investment manager, within set 

of agreed parameters 

Time commitment 

by client 

Timeliness 

of investment 

decisions 

Monitoring of 

investments 

Greater 

Some delay, due to client 

approval being required 

Often less frequent 

Delegated (investment manager 

can make portfolio changes 

without client approval) 

Investment decisions can be 

implemented when opportune; 

frequent rebalancing 

Full-time/ongoing via dedicated 

investment team 

Tax planning Personalised Can be personalised if DFM is 

integrated with financial advice 

GOOD TO KNOW 

Typical in-house 

DFM services 

• Bed and ISA: Selling 

units in a general investment 

account and repurchasing 

them within a 

tax-efficient ISA 

• Capital gains ‘harvesting’: 

Utilising clients’ 

CGT Annual Exempt 

Amounts in each tax 

year to avoid letting investment 

gains run away 

• Portfolio rebalancing: 

Rebalancing to ensure 

portfolios remain true to 

the agreed asset allocation 

and risk profile 

• ISA contribution 

reminders: Reminder 

service for clients who 

have ISA allowances 

remaining at the end of 

each tax year 

• Efficient trading: Inhouse 

trading teams can 

process client dealing 

requests throughout 

the day, ensuring client 

instructions are fulfilled 

in a timely and efficient 

manner 

The total cost – typically 

around 1.55% – 

of Lumin’s ongoing services 

is significantly lower than 

the UK average. The total 

includes Lumin’s 0.75% annual 

fee, which encompasses 

both DFM and financial 

advice, platform charges, 

and underlying product 

costs. Call 03300 564 446 

to learn more. 

FACTSHEET 

Choosing a financial 

adviser or 

wealth manager 





03300 564 446


Preserve pension assets and free up cash 

trapped in the family home 

Unlocking tax-free cash tied up in the family home can help reduce inheritance tax 

liabilities and release cash for important expenditures, including helping children 

onto the property ladder. 

PETER FLOWERS 


peter.flowers@luminwealth.co.uk 

Phone 01727 893 333 

Do you have large pension 

assets and substantial wealth 

tied up in the family home? 

Are you looking to help 

children onto the property 

ladder, fund your own expenses, 

or take measures to 

reduce your inheritance tax 

(IHT) liabilities? If so, equity 

release could be a good 

solution, as property is part 

of the estate for IHT purposes, 

but pensions are not. 

What is equity 

release? 

Equity release frees up taxfree 

cash that’s tied up in 

your property, while you 

continue to live in your 

home. The most common 

form of equity release is a 

lifetime mortgage. This sees 

a cash loan secured against 

your main residence. The 

minimum age is 55 and the 

older you are, the more you 

can borrow. The tax-free 

cash can either be taken as 

a lump sum, or in flexible 

chunks. The original loan 

and accumulated interest 

is then repaid via proceeds 

from the property sale when 

the last partner either dies or 

moves into long-term care. 

Equity release myths 

Many myths still exist, even 

though lifetime mortgages 

are very different from 

certain historical equity 

release products that gave 

the industry a bad reputation. 

Modern products 

offer much more flexibility 

and protection for consumers. 

One misconception is 

How equity release can cut IHT liabilities 

Assumptions: Family with total assets of £4,000,000; figures rounded. 

Current 

situation 

With equity 

release and gift 

Property £2,000,000 £1,500,000 

Pensions £1,500,000 £1,500,000 

ISAs/non-pension assets £500,000 £500,000 

Total wealth £4,000,000 £3,500,000 

IHT estate £2,500,000 £2,000,000 

NRB/RNRB £750,000 £1,000,000 

Potential IHT liabilities 1 £700,000 £400,000 2 

1 Based on current allowances, exemptions and 40% tax rate 

2 If the gift (in this example £500,000) is survived for at last 7 years; 

otherwise potential IHT liabilities are not mitigated 

that you forfeit total home 

ownership, when in fact 

you maintain 100% ownership. 

It’s also often possible 

to move house and transfer 

your lifetime mortgage. 

Others worry their children 

might inherit debt, but ‘no 

negative equity guarantees’, 

which are offered by Equity 

Release Council-approved 

providers, mean your estate 

will never owe more than 

the value of your home. 

Reducing 

IHT liabilities 

For many families, property 

accounts for a large chunk 

of household wealth. Freeing 

up tax-free cash from 

the family home via equity 

release can mitigate a large 

IHT liability and provide 

flexibility when passing 

wealth on to beneficiaries. 

IHT bills can be large, 

even when available nil-rate 

band (£325,000 per person) 

and main residence 

nil-rate band (£175,000 per 

person) allowances are applied. 

In the example (left) 

the ‘current situation’ shows 

the liability a family with 

£4,000,000 in assets face. 

Pensions aren’t part of the 

estate for IHT purposes, 

so the total taxable estate is 

£2,500,000. When an estate 

is valued at £2,000,000+, 

the residence nil-rate band 

tapers away by £1 for every 

£2 above £2,000,000, 

meaning £250,000 of the 

£350,000 residence allowance 

is lost. 

An IHT charge of 40% 

on the taxable assets results 

in a tax liability of £700,000. 

In the other scenario, a 

£500,000 equity release 

lifetime mortgage is implemented, 

and this tax-free 

lump sum is gifted to family, 

reducing the taxable part of 

the estate by £500,000. Because 

the full nil-rate band 

allowances are now available, 

this reduces the IHT liability 

by £300,000. Implementing 

equity release and using the 

proceeds to gift to children 

can be a good way of reducing 

IHT bills while providing 

funds for first-home 

purchases. Gifts of more 

than £3,000 may be subject 

to an IHT charge if you pass 

away within seven years. 

Equity release is a big 

decision and it’s advisable 

to involve your family. 

An independent financial 

adviser can help you 

identify the solution that 

best suits your needs. Call 

the team on 03300 564 446 

to find out more. 

Important: Equity released 

from your home will be 

secured against it. 


When is equity 

release a 

good idea? 




or call the 

team on 03300 564 446

Page 12 | autumn 2022 

How can you cut your tax bills? 

Get started with a Lumin webinar 

Learn with Lumin: Our live presentations guide you through vital taxation topics, 

and are an easy way of taking a firmer grip on your financial future. 

Reduce your tax bills 

More savers are set to 

breach the pension lifetime 

allowance (£1,073,100), 

the maximum amount you 

can build up in your pension(s) 

without incurring an 

excess tax charge of 25% or 

55% on amounts above the 

threshold. What can you do 

if you are facing a substantial 

tax penalty? 

Inheritance tax (IHT) 

of 40% above the tax-free 

threshold can leave a large 

tax bill for loved ones. Can 

equity release help to reduce 

your IHT liabilities and secure 

your family’s financial 

future? 

Pensions and ISAs are 

the go-to tax-efficient wrappers 

for many people, but 

high earners and/or highnet-worth 

individuals may 

ABOUT LUMIN WEALTH 

For growing, managing or protecting wealth, 

you are in expert hands with Lumin. 

Lumin Wealth 

St Albans Office 

5 Sandridge Park 

Porters Wood 

St Albans, AL3 6PH 

Phone 01727 893 333 

info@luminwealth.co.uk 

www.luminwealth.co.uk 

EVENTS 

Equity release and estate/IHT planning 

Friday 7 October 12.00pm Live webinar 

Will your pension(s) be hit with a 55% tax charge? 

Tuesday 11 October 12.00pm Live webinar 

Tax-efficient solutions for wealthy individuals 

Wednesday 12 October 12.00pm Live webinar 

Register now to secure your place 

www.luminwealth.co.uk/events 

Scan the QR code 

want to (or need to) consider 

additional solutions for 

implementing an effective 

tax planning and wealth 

management strategy. 

Get started with a webinar 

Lumin webinars equip you 

with essential knowledge 

and help you to plan and 

make important decisions 

with confidence. 

London Office 

Cornwell House 

21 Clerkenwell Green 

London, EC1R 0DX 

Phone 02039 887 788 

Presentations last for up to 

45 minutes and there will 

be an opportunity to ask 

questions. 

Register via luminwealth.co.uk/events, 

scan the QR code, or book 

directly by calling 

the Lumin 

team on 03300 

564 446. 

You can count on 

our expertise in: 

• Pensions & retirement 

• Inheritance & tax planning 

• Investments 

• Protecting family & business 

• Comprehensive financial 

planning 

• Financial planning for 

business owners 

NEWSLETTER 

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Our content constitutes a ‘financial promotion’ for the purposes of section 21 Financial Services and Markets Act 2000 (United 

Kingdom) (‘FSMA’). This publication is for general information only. It does not constitute advice or (by itself), a basis for any 

financial decision. You should only make such decisions based on your individual circumstances and, we recommend, with advice 

from suitably qualified advisers working for a regulated firm. Whilst we try to be accurate, Lumin Wealth does not accept responsibility 

for any inaccuracies in this publication or for any loss that may result from reliance on it, but this disclaimer does not affect 

our responsibilities or your rights under the FSMA or other applicable UK law and regulation. Any financial projections in this 

document are provided for illustrative purposes only and should not be regarded as predictions. Past performance 

is not a guide to future returns. The value of investments may fall as well as rise and you may get back 

less than you invested. Tax treatment depends on your individual circumstances and rules may change. The 

Financial Conduct Authority does not regulate tax and estate planning.

lumin news Issue 6 / Autumn 2022

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