Question

I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate of 41%. Is there anything that I can do to reduce this amount?

Answer

Since the time of Covid, estates have been taking up to three years to get wound up.  This can cause problems for your loved ones.  A bit of planning can ensure that your family will have sufficient income and access to capital while the estate gets finalized.

I would suggest that you look at the following:

Budget

You need to know how much money your household needs to live on each month. I would suggest that if you don’t have one, you draw up a budget so that you know how much money is needed each month to keep the household running. 

Cashflow

Once you know what is going out, you must determine what is coming in.  You should list all the income sources that you and your spouse receive and note any potential changes to them should one of you pass away. In some instances, company pensions get reduced when a spouse passes away.

Where the income comes in the form of an annuity, there should be no problems if a beneficiary is attached.  However, where you are supplementing your income by selling shares or making withdrawals from an investment that is in your name, there could be problems if you pass away.   This is where proper cashflow planning and the use of clever financial structures can make a difference

Now, the standard way of preventing your investments from getting tied up in the master’s office is to put them into structures like an endowment or sinking fund where you can attach a beneficiary.  The advantage here is that the asset can be transferred directly to your spouse or beneficiary without them having to wait for the estate to be wound up.

The downside of having your assets in one of these structures is that they come with a 5-year initial restriction where you can only make one withdrawal and one interest free loan from them. A way around this is to split your money into five smaller investments where you can access the funds twice a year during the restricted period.

Insider tip

Most investment companies have fee structures that are based on the size of your investment.  If you’re going to be splitting your investment into several parts, make sure that you use the company that will charge you based on all your holdings rather than on a specific investment.

You will need to ensure that you have sufficient cash to live on during the period between your drawings from the structure.  I would recommend that you take out at least six months’ worth of income and put half in your bank account and the other half in your spouse’s bank account.  This will provide you and the family with six months’ worth of liquidity. 

Update your will

I would recommend that you update your will and have it checked by professional to ensure that it is correctly signed and structured.

Where there are minors involved as beneficiaries or potential beneficiaries, I would recommend that you have a clause inserted in your will for the creation of a testamentary trust.  This will prevent any inheritance for a minor from going into the Guardian’s Fund.  The Guardian’s Fund is administered by the master’s office so by doing this, you could avoid any potential delays. 

When it comes to moving your assets around, you must be aware of the tax implications of these actions. In many instances the convenience of having your assets in a structure will be worth any tax paid.  I would, however, urge you to consult a professional before making any drastic decisions.