Investing a large inheritance

Hamilton10_2

Yeah you're probably right. My wife is more keen than I am to move. I know it's a heck of a lot of money and it's easy to sound totally spoilt, but for some reason I don't like the idea of such a large proportion being tied up in a house.

I've also started to look into investment trusts - they look like a slightly riskier vehicle but in general much cheaper to run.

dunstonh

I've also started to look into investment trusts - they look like a slightly riskier vehicle but in general much cheaper to run.

They are cheaper, they are riskier than the equivalent OEIC fund (ITs can borrow money whereas OEICs cannot). You will also pay higher rate tax on the income distributions (even if re-invested) and you will face a potential capital gains tax liaiblity. With the amounts you are talking about, you could find growth exceeeds your CGT allowances each year. They would also require you to sell and rebuy to utilise that allowance. That incurs time and cost.

Hamilton10_2

Thanks again dunstonh - yes I was aware of the potential for gearing. I agree that tax should be a consideration, but it shouldn't be the be all and end all.

Isn't the internal taxation / income tax / CGT situation the same whether it be a fund or an investment trust?

EdInvestor

Hamilton10 wrote:

Yeah you're probably right. My wife is more keen than I am to move. I know it's a heck of a lot of money and it's easy to sound totally spoilt, but for some reason I don't like the idea of such a large proportion being tied up in a house.

No need to put all of it in the house of course - 200-300k perhaps and invest the rest?

You might like to play around with this asset allocation calculator - deciding on how much should be put in each asset class often helps to clear the mind with a big sum like this, as it breaks the money up into more manageable chunks.

It's an American calculator, so where they talk about bonds and municipals, we would also include commercial property (and BTL) in the same risk class.

Let us know what it says about a suitable allocation for you.


For part of the equity allocation I suggest you take a look at the High Yield Portfolio concept.This is a very easy "buy and forget" low risk way to invest in UK blue chip shares for the long term. At the investment levels you're talking about the savings in charges will be enormous if you go this route over 30 years or so as opposed to investing via funds.

HYP info

dunstonh

Hamilton10 wrote:

Thanks again dunstonh - yes I was aware of the potential for gearing. I agree that tax should be a consideration, but it shouldn't be the be all and end all.

Isn't the internal taxation / income tax / CGT situation the same whether it be a fund or an investment trust?

Take a look at this thread as it covers similar things. http://forums.moneysavingexpert.com/showthread.html?t=186617

You are correct that tax is secondary to investment choice but where the same investments exist across the different tax wrappers, then taxation and charges become the the thing to choose between them. As I mentioned on that other thread, I arranged a bond this week on the basis of 0.1% reduction in yield over 5 years. The same funds on UT basis would have been over 1% reduction in yield on same charging basis. The old assumption that investment bonds are always expensive is incorrect nowadays. Whilst you can still get them with 3.5% reduction in yield, you shouldnt measure them all by those extremes.

The important thing is to go into this with your eyes open and aware of the facts on all the applicable options. Each will have its disadvantages and its advantages. As I mentioned earlier on this thread, a combination may be the best option to achieve your goals. i.e. ISA, OEIC/IT and bond.

The taxation issues are the same with UT/OEIC and IT. Yields are going to be the issue for you and potential CGT liability. ZDP could get round the income issue. You should factor in the annual cost and time into the buying and selling of the UT/OEIC/IT to utilise your CGT allowances if you think that option is looking valid.

Hamilton10_2

Thanks again for the valuable advice and clarification.

BTW - just so I understand this. If I make a capital gain on the shares in one tax year which is greater than the annual allowance, to make use of the allowance for that year I would dispose of units / shares with a capital gain equivalent to the annual allowance and then repurchase. This would then avoid capital gains on this amount in any subsequent years? Also - are you allowed to repurchase the units / shares within 30 days?

Hamilton10_2

Just answered my own question. The rule means that any capital gain / loss would be matched between the sale and repurchase if this is done within 30 days. Not a lot of point doing this then dunstonh as it wouldn't be matched against the original purchase price - only way to match it this way would be to repurchase after 31 days. Too risky. However my wife could repurchase the investments right after my sale and would avoid the 30 day rule.

EdInvestor

However my wife could repurchase the investments right after my sale and would avoid the 30 day rule.

This is called "bed and spousing".

Hamilton10_2

EdInvestor - thanks for that link. I've had a look but my work computer doesn't like the Java applet for some reason. I will give it a go over the weekend at home.

dunstonh

That asset allocation tool appears to be fixed and doesnt include asset classes that the typical UK investor would use. However, its not bad for guidence.