Reinvesting But With Severe Penalties

xylophone

We are setting up a Trust mechanism to mitigate against an IHT liability and also provide an income for them to be cared for using their capital

You are taking professional advice from an expert in wills and trusts? http://www.hmrc.gov.uk/trusts/index.htm

gadgetmind

Glen_Clark wrote: »

How did I miss that one

Dunno 'cos it was discussed on MSE a whole load at the time!

grey_gym_sock

to draw 4-5%, while at least trying to preserve the real value of the capital (if that is your brief), you have to take some risks with the capital. but not crazy risks - it's within the bounds of possibility.

you should either be looking at B2L, or shares (& perhaps bonds). or perhaps both, if there's enough money to do both. for shares, there are some decent investment trusts, paying c. 3-5% dividends, with a good record of raising the dividends at least in line with inflation.

any of these approaches would mean that the capital can go down as well as up. but has a fair chance of preserving its real value in the longer term. the income would not be guaranteed, but would be more reliable than the capital. (or would it for BTL? given you can have vacancies or non-paying tenants?)

gadgetmind

grey_gym_sock wrote: »

to draw 4-5%, while at least trying to preserve the real value of the capital (if that is your brief), you have to take some risks with the capital. but not crazy risks - it's within the bounds of possibility.

4% drawdown is long term sustainable and 5% possible, but both can deplete capital.

However, for the elderly, depletion isn't a huge issue.

atush

gadgetmind wrote: »

Dunno 'cos it was discussed on MSE a whole load at the time!

Daily as I recall, when they were still available

atush

I know the trust is to help mitigate IHT, but given there is a large dual allowance, couldn't the highest penalty items be left out of the trust?

Is the purpose of the trust to help beneficiaries as regards tax, or take care properly of the individuals needing care?

quotememiserable

Fazzer wrote: »

I am keen about the B2L schemes and have spoken to a local agent. Although I accept there is no guarantee and a certain amount of effort required I have estimated a 4-5% return.

It all depends on what you buy. Cheap properties give the best return in terms of rent yield. There are some in openshaw (area of manchester) with sitting tennants paying a rate that would be 12% if they go for the guide price (which they won't of course) in the next property people auction at old trafford, for instance. Guide price £45k rent £5.5k. A decent lettings agent would take 10% for which they should find tennants, take phone calls from sitting tennants and dispatch repair people. Repairs themselves at your expense of course.

joerugby

Fazzer wrote: »

Thanks gadgetmind

Your comments are much appreciated.

I have estimated a return of 4-5% on the capital will allow us to pretty much preserve the original sum invested but is a really big ask.

The care of both parties will be at their own home even if 24/7 which is dramatically cheaper (or can be) than sticking them in separate care homes to fester and pay them £120k per year for the privilege, which would be the case given their individual circumstances. It would be wrong to split them up anyway.

It is a difficult situation but I guess a sacrifice will have to be made with the early withdrawal penalties.

I imagine you have researched this but there are good quality care schemes which accept couples.

Also if your relatives were fortunate enough to live in Wales the cost of their personal care at home, or in an appropriately structured extracare scheme, would be capped at £50 per person per week

jimjames

Fazzer wrote: »

So long as the income is monthly and the capital is safe in this rather strange world we now live in I am open to any ideas.

Thank you for your reply

There seem to be a few bits that are contradictory here.

If you are buying a BTL property then the capital is not guaranteed. The income isn't guaranteed either.

You don't say what the ISAs are and whether they are cash or S&S but from the 2.5% you quote I assume they are just cash. Not sure if you've considered the equity income funds/shares option but that would certainly be worth looking into if you are considering BTL and would be a whole lot less hassle.