We do like to retire beside the seaside

Pat and Thomas Taylor
Ages 62 and 75
Live in Newcastle upon Tyne
Occupations Retired
Earn State pensions
Mortgage None
Debts None
Investments Isa, Premium Bonds
Pensions Receiving state pension
Aims To invest proceeds from trading down house

Pat and Thomas Taylor are moving to a small flat in Whitley Bay, two minutes away from the seafront. After 30 years in an old, high-ceilinged house with a large garden, they have decided to trade down to something easier to manage.

Pat says: 'We have bought a small flat down at the coast. We read a lot and walk a lot, which is why going to the coast is a nice extra dimension. The garden here is getting a bit much for us and it is surrounded by large sycamore trees which have a preservation order on them, so every autumn my poor husband has mountains of leaves to clear up.'

They have just the state pension to live on, but in Whitley Bay their outgoings will be cheaper. They have no car but the flat is only two minutes from the Metro.

Over the years, instead of saving, they have spent their money on the old house because it always required a lot of attention: 'We have only been able to do bits and pieces to it as we could afford it, because we never borrow money. We have added rewiring, new gutters, a new bathroom, and finally, about 10 years ago, we got round to central heating and new windows.' The Taylors feel they would never stop spending money on the house and it would always be a worry.

The new flat will need decorating but nothing more: 'It has a lovely fitted kitchen and a nice bathroom, so we don't have anything to do.'

Nor will they have any upkeep problems: 'A maintenance agreement covers all the outside work, garden and walls. We have to join the tenants' association and every year they reckon up. All the work is done, a balance sheet sent to you and it costs about £400 a year with limits on how much the bill can rise each year.'

Pat and Thomas will have to adjust to having less space but are happy with their choice: 'After always living in old houses with high ceilings and large rooms, looking around at modern flats we were absolutely horrified. I couldn't believe the tiny modern bathrooms, but we have been lucky to find something that suits us.'

They are selling the old mortgage-free house for £85,000 and paying £62,000 for the flat: 'After all the costs, we estimate we will have £20,000 to invest to provide us with extra income and an emergency fund.'

Their only other savings are £1,000 in a Newcastle Build ing Society Isa and £2,500 in Premium Bonds which produce winnings of £100-£150 a year. Their main concern is tax: 'We do not pay tax at all at the moment and we want to know how much leeway there is with the investments before we have to pay tax.'

Adviser 1: James Dalby

With ?20,000 to invest, they are most unlikely to
have a tax problem. In the current tax year they
have over ?1,800 a year in unused personal tax
allowances plus married couple's allowance for
people over 65. This is not straightforward but, for
the Taylors, effectively reduces any tax bill by up
to ?525.50.

Not wanting to take risk limits their investment
options to cash-based ones, but I would
encourage them to consider taking a little risk
with some of their money so that they can benefit
from capital growth. Placing, say, ?5,000 in a
with-profits bond is a good option. They can take
an income of 5 per cent a year, still leaving some
potential for capital growth. Compa nies to
consider include Norwich Union, Scottish
Equitable and Scottish Mutual.

For an emergency fund, I suggest ?5,000 in the
Scottish Widows Instant Access account at 6.25
per cent gross, or they could use mini cash Isas;
Britannia building society offers one of the most
competitive, with tax-free interest of 6.85 per cent.

The balance of ?10,000 could earn monthly
income, perhaps in the Capital One Bank 30 Day
Saver account. The annual interest is currently
6.62 per cent.

They should each complete a form R85, available
from banks and building societies, so all interest
is paid gross.

James Dalby works for Bates Investment Services

Adviser 2: Joanne Cox

Mr and Mrs Taylor will not pay tax on the lump
sum as it comes from the sale of their main
residence, although, in future they may pay tax
on any income from investments they buy with
the money.

Thomas's pension is ?4,960 a year and at 75 his
personal allowance is ?6,050, so he could earn
another ?1,090 a year before paying tax.

Mrs Taylor can receive a further ?786 before
paying tax. They could each have ?3,000 in a
cash Isa although, on the downside, few cash Isas
pay out interest monthly.

As Mr and Mrs Taylor are risk-averse, they could
consider National Savings Income Bonds, which
pay 5.95 per cent and, on ?20,000, earn ?1,190 a
year, well within their combined allowance. They
should invest proportionately to take advantage of
their individual tax allowances; by investing no
more than ?10,000 in Mrs Taylor's name they will
both keep within their allowances.

The disadvantage of National Savings is that
there is no capital growth and, while they may
not be looking for that as such, without it their
money loses purchasing power.

An investment which could satisfy both the
income and growth need would be a with-profits
bond. These are not risk-free but the Taylors
would have no extra tax to pay.

Joanne Cox works for Co-operative Bank Financial
Advisers

• Advice is for guidance only