Investing a large inheritance

EdInvestor

PLease post any UK ones you can find - there don;t seem to be any.

IMHO it adjusts OK for UK circs if you assume that bonds/fixed interest included commercial property.

The main thing is to get a feeling for what proportions you want in shares and cash.

Hamilton10_2

I tried the asset allocator calculator. Results came out as follows:

- large cap 26%
- mid cap 22%
- small cap 17%
- foreign stock 20%
- bonds 6%
- municipals (which I've translated as property funds) 5%
- cash 4%

I've not really thought that much about investing in bonds before as the yields don't look that great, especially as a higher rate tax payer. It would be nice to have a bit of income though as well as just growth.

Any other views?

EdInvestor

In the UK context bonds are more or less interchangeable risk wise with commercial property , so we could probably "translate" the asset allocation as follows:

Mainstream UK shares 48%
Riskier shares (UK small cap and foreign) 37%
Commercial property 11%
Cash 4%

If you really think you should have only 4% of all your assets in cash, I can quite see why your wife thinks you should move now.

dunstonh

The asset allocation which Ed has invested is very crude and completely ignores fixed interest funds which should still be used to give you a balanced portfolio. I wouldnt remove them like Ed has but I would be more inclined to remove cash and use fixed interest in its place.

Large/mid/small cap is important to consider. You just have to look at FTSE100 funds that have done virtually nothing over the last 5 years and compare them to FTSE250 funds which have been amongst the best performers. Do you pick one of those or do you spread it amongst them? I would spread it. Overseas should be as diverse as possible and I usually include at least one specialist fund in the mix.

EdInvestor

Frankly these days the additional return over cash that you get from fixed interest is so small that you might as well just use cash,as the risk has rocketed.Commercial property should produce the same kinds of returns as corporate bonds with arguably the same or lower risk.

Until the actuaries stop playing silly games with the bond market, I wouldn't touch it with a barge pole.

Most small investors will be much better off with equities, cash and property.

Debt_Free_Chick

EdInvestor wrote:

PLease post any UK ones you can find - there don;t seem to be any.

Fidelity Portfolio Planner

But you have to register and go through a series of questions that help you to identify your investment goals and attitude to risk. At the end, they suggest an asset allocation and then list all the funds on the Fidelity Funds Network that match each particular class. Well worth it though, IMHO - you get a detailed report to save or print too

taylornj

You can gift £3000 per tax year in total under inheritance tax (so can your wife I think) exempt of the seven year rule, split between the two children. Children have their own tax allowances for income and capital, anything below the tax threshold is free of tax, find high interest childerns accounts, and fill form R85 to get gross interest paid into the accounts - I don't think you need ISA's.

With that size amount a lot of things like tax, inheritance tax, and Wills need to be considered. Inheritance / Will think the best practice is to ensure children receive some of the estate to reduce inheritance tax rather than all going between husband and wife otherwise 40% tax on passing estate to childern above £285,000, hence gifts to childern earlier to ensure seven year is not hit is a good idea.

Other things like having life insurance in trust. Trust pays out directly and outside of the inherited estate, hence no tax at 40%.

You need to check all this out, just some extra things to consider beyond simple investing.

EdInvestor

Some more about asset allocation from the US regulator. There's also a link to an asset allocator, which looks very similar to the one above.

Chrismaths

taylornj wrote:

You can gift £3000 per tax year in total under inheritance tax (so can your wife I think) exempt of the seven year rule, split between the two children. Children have their own tax allowances for income and capital, anything below the tax threshold is free of tax, find high interest childerns accounts, and fill form R85 to get gross interest paid into the accounts - I don't think you need ISA's.

With that size amount a lot of things like tax, inheritance tax, and Wills need to be considered. Inheritance / Will think the best practice is to ensure children receive some of the estate to reduce inheritance tax rather than all going between husband and wife otherwise 40% tax on passing estate to childern above £285,000, hence gifts to childern earlier to ensure seven year is not hit is a good idea.

Other things like having life insurance in trust. Trust pays out directly and outside of the inherited estate, hence no tax at 40%.

You need to check all this out, just some extra things to consider beyond simple investing.

If the interest the kids earn is more than £100 it is taxed as the parent's income, so this doesn't work for large sums.

Life insurance in trust is up in the air at the moment, as GB is having another go at trusts. They've promised not to make changes retrospective, but the draft finance bill still makes things retrospective, and includes life assurance in trust. More Treasury lies...:mad:

Anyway, I don't think this chap is worried about inheritance tax just yet, I think he'd do better to focus on income tax and cgt.

Dave_P161

taylornj wrote:

You can gift £3000 per tax year in total under inheritance tax (so can your wife I think) exempt of the seven year rule, split between the two children. Children have their own tax allowances for income and capital, anything below the tax threshold is free of tax, find high interest childerns accounts, and fill form R85 to get gross interest paid into the accounts - I don't think you need ISA's.

The above only applies to money NOT provided by the parents (grandparents and other relatives, for instance). There are special rules if a parent has given the savings to their child. If gifts from a parent produce more than £100 gross income a year, the whole of the income from the gifts is normally taxed as that parent’s income. A child cannot get back any tax on that income. Nor can interest paying accounts have interest paid without tax taken off.

As far as I know the only 'normal' savings account that can be funded by parents to by-pass this rule is the National Savings Childrens Bond which is tax free for both parents and children. The interest rates rates are not spectacular though and there are additional restrictions on the account (up to £3000 per issue and they run for 5 years at a time with a final bonus added).