My wife and i currently have £200k put aside that will eventually go to our children. We would like to invest it somewhere that will give us a decent return.
We had a banks personal equity adviser come around but the fund returns seemed terrible.
We'll need to have access to the money in an emergency but that's it really.
Questions And Answers
Putting our nest egg to good use
asked by Steve h posted 1 Years ago at 10:07
1-4 of 4 Answers
121-advice Ltd answered 1 Years ago at 4:25, last modified: 1 Years ago at 4:26Hello Steve,
First things first. Make a clear distinction between 'savings' and 'investment'. Savings are short-term, permit access with little trouble and generally do not put your capital at risk. The trade-off is that returns are generally poor in a low interest rate environment. If you need access to ALL of the £200K you have little option but to leave it on deposit and/or cash type ISA investments over time.
If you are comfortable relinquishing access to SOME of the £200K for a period of 2-3 years, then you might be attracted by some of the offshore capital/principle protected third-party litigation funding notes? These offer 100% capital protection, 2-3 year term & 12%pa guaranteed income + up to 20% win bonuses on maturity. Many investors like the guarantees and [relatively] short 2-3 year tie-in. Certainly you might wish to consider something along these lines for an element of the £200K? Min investment is usually in the region of £20KGBP.
I am one of the regular contributors to articles on T.I. You can find my contact details onsite should you wish to discuss the above or other possible options.
Main rule: Don't invest ANY capital you might need short-term. Ease of access is the priority. Even 30/60/90/120 day notice accounts are worthless as a home for emergency money - emergencies never give you due notice! Keep it simple & you can't go far wrong.
Mark Mason answered 1 Years ago at 9:40Would the £200,000 be subject to inheritance tax at 40%? If so then a cool £80,000 is going to dissappear. In these circumstances then the investment would have to grow to £333,333 to net £200,000 probably a little ambitious. Avoiding the tax would be more beneficial than any realistic investment return.
How to achieve that? Do you need access to all the funds? £200,000 is a considerable emergency! Much depends on the use the children might put the funds too. If they are wealthy in their own right then it might simply be added to savings and not do very much except add to their IHT problems. You might consider skipping generations and giving the money to grandchildren, usually in a trust. Give it away now and live more than 7 years. Many clients don't like the thought of loosing control in this way. You might consider using Annual Allowances and 'out of income' exemptions to help children and/or grandchildren to build pensions. It is very rare to find a young persons pensions fully funded and up to date, having a parent provide funding would take a huge burden off the children's budget and would protect the funds from situations such as divorce (which could see the funds go to another family altogether). This also happens to be extremely tax efficient as the contributions get tax relief and income is reduced so eligibility to state benefits such as tax credits is increased.
You could consider funds that use the Business Property Relief. These are investments in small companies with all the risks inherent in small companies. Some of the funds limit the risk exposure, but the benefit is growth potential with the added benefit of inheritance tax exemption after 2 years ownership. In terms of access you own the shares and can sell them whenever you wish just like a share portfolio or ISA fund. As is so ofthen the case your objectives conflict with each other. The optimum solution is possibly employing all the ideas to keep some in cash, some in funds, and give some away using allowances.
Whatever the difficulties its a nice problem to have, luckily my parents never had to wrestle with these decisions...
121-advice Ltd answered 1 Years ago at 12:50Don't let the "tax tail wag the investment dog!"
Many investors prefer to get a solid return on their investments and then, during their lifetime 'gift' monies to next of kin. As long as these gifts do not effect your standard of living and are 'intended' to be regular in nature, then this is a good way to slowly erode the overall value of your estate - if you need to do so.
However, advances in medical treatments mean many elderly investors are living much longer and would like to ensure good, solid returns to cover any care costs later in life and not gift anything away prematurely. Much depends on your overall net worth.
Make sure you have up to date Wills. Avoid tying your money up in trusts unless the overall value of your Estate(s) requires more creative inheritance tax planning - In which case your time would be better served not here, but meeting with a local solicitor who is STEPs registered (Society of Trust & Estate Practitioners).
From the tonality of your enquiry I got the impression that you simply wished to find a good home for your money. This being the case (and assuming your Estate(s) are below the combined joint IHT threshold) my previous suggestions might prove interesting?
EMAR Publishers - Dividend Income Investor.com answered 1 Years ago at 16:02, last modified: 1 Years ago at 16:04Hi Steve and spouse
In order to have control, may I suggest you consider that you both open a stocks and shares ISA at a low cost online stockbroker, and deposit maximum contribution each year.
Than, in order to maximise total return may I suggest you consider high quality dividend paying shares when they are historically undervalued. Once invested, if you do not require the income, which you can take out tax free, re-invest the dividends in same or similar undervalued dividend paying companies as we explain in much more detail at Dividend-Income-Investor.com
Steven Dotsch - managing editor - Dividend-Income-Investor.com
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