Have a large amount of cash that needs investing

Wilsonio

Thanks for the advice everyone!
My mum has sat down and work out in total how much she can live on, and then has added £500 extra a month to enjoy life a bit.
It comes out at around £12,000 a year.
We are then taking this to an Independant Financial advisor to achieve this rate of income, which includes a wide range of investments such as normal savings accounts to premium bonds to 1 and 3 year investments.

A quick question though is that to try and conter any inheritance tax my mum has also put the childerns names on the house(mortage has been written off).
She also wants to make investments in our names but keep the interest that come off it, so we control the capital but my mum collects any interest she might need in case of an emergency, if the cash isnt needed by my mum she puts it back into our account.

Thats her plan anyway, however I was thinking this might be deemed illegal as I heard somewhere that there is a limit of how much you can give some as a 'gift' every year?
I am sure the financial advisor will clear this up for us anyway

TomsMom

dunstonh wrote: »

With respect, it is impossible to make any suggestions at the moment as it isnt known how the money is going to be used.

The OPs mum is going to be a tax payer and the amounts involved coupled with state pensions and possibly other pensions are likely to see a 100% savings based solution take her income above the age allowance reduction creating an tax liability or nearly £1000 a year. That does not need to happen and can be avoided with a bit of planning.

However, lets place £300k into Northern Rock at 6% and take 20% tax from it.
That turns £18,000 interest a year into £13,400. Lets deduct another £1000 tax for age allowance deduction. That makes the actual tax deduction around 25% and the 6% gross return becomes 4.5%.

Inflation is running at 4.4% at the moment so the actual gain in real terms is 0.1%. However, the OP mentioned that an income is required so if the mum draws the £14,400 interest (and deducts £1000 for the extra tax bill) that means the capital is losing money each year in real terms. That not only hits the capital but the spending power of the interest as well. This will guarantee the OPs mum to a reducing income in real terms which will lower her living standards over time.

The risks involved on a transaction like this are:
1 - investment risk
2 - inflation risk
3 - shortfall risk
4 - security of provider.

Out of all those the one that is least an issue is the last one but its the one that seems to be getting the most comments.

the OPs mum needs to work out what she needs from income and make some provision to cover inflation. It may mean that some investment risk is required. It may not. However, it is unlikely that a single option is going to meet her needs. She was clever enough to realise that a bank sales rep wasnt up to the job so you hope she is clever enough to spend the time understanding what she needs to do and learn a bit about the options and the different risks rather than just focus on one or two things and ignore the rest.

I didn't suggest the whole of the amount be put into NR. I mentioned if they wanted to put any in savings it might be a suggestion for SOME of it considering the OPs original question was

Anyone have any advice/knowledge on where to put some of these 30k lots?

dunstonh

A quick question though is that to try and conter any inheritance tax my mum has also put the childerns names on the house(mortage has been written off).

That wont avoid inheritance tax. Gifts have to be without reservation for them to start the 7 year countdown. Your mum is still in the property and getting benefit from it so the HMRC will just treat it as part of the estate still.

She also wants to make investments in our names but keep the interest that come off it, so we control the capital but my mum collects any interest she might need in case of an emergency, if the cash isnt needed by my mum she puts it back into our account.

Again, that will not avoid inheritance tax for the same reason that she is getting the benefit of the capital.

I am sure the financial advisor will clear this up for us anyway

The IFA should be able to. There may be options available to her to do some of those things utilising trusts and she may not even need to do it depending on her overall assets and how much of the nil rate band that was used with your Father when he passed away.

Just out of interest : If the income requirement was not required what would your advice be? Something like invest in a fund over and above savings?

Thats a bit too specific really as it varies depending on circumstances and personal opinion. However a combination of things is likely to be useful rather than one specific thing. Lower risk individuals may want to focus on cash ISA, NS&I index linked certs, S&S ISAs utilising low risk investments or some with elements of capital security. Investment bonds may come into play as they can be tax efficient for some (although tax inefficient for others depending on circumstances again). Risk profile would be key to deciding on what happens.

debbie42

Wilsonio wrote: »

A quick question though is that to try and conter any inheritance tax my mum has also put the childerns names on the house(mortage has been written off).
She also wants to make investments in our names but keep the interest that come off it, so we control the capital but my mum collects any interest she might need in case of an emergency, if the cash isnt needed by my mum she puts it back into our account.

My understanding is that, with current inheritance tax rules, married couples pass on their allowance to the surviving spouse. So if your father left everything to your mother, there would be a nil-rate threshold of 600K before inheritance tax was to be an issue.

Cook_County

Mum may have created a capital gains tax bill when the house is sold plus exposure to the tax on pre-owned assets by adding the children in as owners.

I think she should speak with the solicitor who handled this & ask for an explanation of the tax position.