Investing Child's Inheritance - Upsize to Downsize?

Ess-ABC

My daughter (late teens) has inherited approx £100k which I am to hold on her behalf until she reaches 21 - a fantastic opportunity for her to get on the property ladder. Whilst this is an enormous amount of money, where we live (Greater London) this in not enough to buy even a studio flat.

My husband and myself have been thinking of downsizing for a while, but I now wonder if we should UPSIZE for a few years (using my daughter’s money to provide the additional funding needed to upsize) the idea being that in a few years when she is 21 (or whenever she is ready thereafter) we sell the larger property and hand over to her the £100K PLUS a proportion of the increase in the price of the property. So, if for example we purchased a property for £500k using £100k of my daughter’s money and £400k of our own, and subsequently sold that property for £550K, then we would give her £110K. Of course this is assuming/hoping that house prices go up.

I should add that I am VERY AVERSE to the idea of using her money for a buy to let (e.g. a property purchase in another part of the country where house prices are less) as I am aware of others who have done this sort of thing and I just know that being a Landlord is not for me.

Alternatively, buying her a property and keeping it empty (rather than being a Landlord) would be such a waste, not least because I would have to find money for council tax, utility bills, any repairs/upkeep, insurance etc, (not to mention travel costs if we want to keep an eye on the property) all from my own savings until such time as my daughter is working and earning enough to take on the upkeep, which would not be for several years I suspect.

Obviously all would need to be spelled out to my daughter to see if she agreed to my Upsize to Downsize plan, and the other big hurdle would be getting my husband on side with moving twice within a few years. Disadvantages that spring to my mind are two lots of moving costs and conveyancing fees (I would probably try and use an online estate agent to save funds). However if we were to use her £100k to purchase a buy to let, there would be these fees and, as we are thinking about downsizing in any event, there would still be those moving fees, so either way there are two sets of moving fees.

Another concern is that I believe my husband would not want our new property to be in any additional names to mine and his. So, I would need to think about how to ensure that, in the event of myself or my husband dying, or whatever, it needs to be clear that my daughter is entitled to a share of the (upsized) house as her inheritance money was used as part of our purchase price.

Not sure if the above upsize to downsize plan would work. Is it practical/sensible? I would be grateful to hear your thoughts - negatives and positives and indeed any other ideas you may have on how I can preserve and grow my daughter’s money to help it keep pace with London property prices, without the burden of my becoming a landlord of a buy to let. Thanks!

System

How late teens is she because it may be that the money needs toi be in a trust not for you to sort your housing wishes out.

Call me cynical but I just don't see the money being made available when requested if it is tied up in the family home.

mvarrier

Keep it simple for an easy life. Many, many ways this could backfire

xylophone

The money is left to your daughter without contingency ie it is not a case of if she reaches the age of 21 but when she turns 21?

She is the beneficial owner of the money but is not entitled to control of income or capital until she turns 21?

In that case, you are the Trustee of an Accumulation Trust - the money needs to be held on her behalf within the Trust.

Tying it up in the family home would not be a proper use of the funds.

There are rules relating to the taxation of trusts.

http://www.scottishwidows.co.uk/Extranet/Literature/Doc/FP0296

http://www.nwbrown.co.uk/news/child-trust-funds/

http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/trusts/introduction.htm

You should take professional advice?

Keep_pedalling

If you did this, and I doubt whether you legally could, then the trust would own 20% of the house and you would need to pay rent to the trust at market rates for its portion of the property.

Really what you should be doing is taking some professional advice on how this fund is handled.

Ess-ABC

Thanks All for reading/responding. I have naively assumed that I am simply required to “look after” the money on her behalf until she is 21 and pass it over with any interest/growth. Evidently it’s more complex and I need to make sure I get things right so I’m glad I put this out there. My wish was, and still is, to downsize. Upsizing first was only going to delay things so no problem at all not to upsize.

My daughter is 18 and the Will does not detail any specifics about how the money is to be managed until she is 21. I don't think it even specifies who is to manage her funds. I am Executor for the Will and first time I have had such a role.

Xylophone – many thanks for the links, and as you suggest I will seek legal advice on this. The solicitor who is handling probate has not mentioned/given any guidance on this thus far (maybe he's waiting until the funds are all to hand).

Meanwhile any further advice/experience/examples/suggestions of the best and correct way to go about achieving my aim of growing my daughter inheritance very welcome.

Ess-ABC

Keep peddaling - ouch! Thanks for raising this.

kidmugsy

Your daughter is 18 so she can open an ISA. She can have high interest current accounts. These are probably good ways to invest/save her money. You could always look at investments that should keep up (or keep down) with house prices.e.g. Hearthstone - I dare say there are others.

Is your daughter going to go away to university outside London? Does she have an income at the moment? Is there anything else you should tell us if we are to make helpful suggestions?

xylophone

An ISA can't be opened in trust.

As I understand it, the will has created a trust by leaving the money to the daughter with no access or control until she is 21.

kidmugsy

xylophone wrote: »

An ISA can't be opened in trust.
As I understand it, the will has created a trust by leaving the money to the daughter with no access or control until she is 21.

Good point. Then rejecting the original daft proposal, and accepting that investing in shares and the like is wildly unsuitable for a three year period, there's no obviously attractive way to use the savings.

What rate of income tax would an accumulation trust pay? What sort of interest rate would Trust savings accounts pay? I suspect the return will be approx nil. What are the investment duties of the Trustees? Must there be more than one Trustee? Over to the lawyer, I'd say.