Inheritance for my Children

Invest987

In short my children have inherited a property of roughly £400K and cash of £150k. They will not recieve or even know about it until they are 25. One is 17 and one is 15. Where do I start? 
Fyi, if I rent the property it is likely to take £25k to bring it up to rental standard. It's so important to me that this money grows and looked after wisely.  Thank you. 

MalMonroe

If the inheritance is in your children's names I assume you, as their parent/guardian are nominated trustee? Will you be allowed to take some of the money to do up the house? If not it may not survive for another 8-10 years if it's left. That does seem the wisest option, do it up and let it out. Or even do it up and sell it. Nobody can forecast the future but whichever way you look at it, it's money for nothing for your children. Lucky youngsters! Win-win, as I see it. 

xylophone

They will not recieve or even know about it until they are 25. One is 17 and one is 15.

If the bequest has "indefeasibly vested" in your children (has it?) then it will need to be held in bare trust for them - the beneficiaries of a bare trust have the right to access and control at the age of 18.

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem1563

If it is a bare trust, then income belongs to the children and is taxable as theirs - each of them has his own Personal Allowance/savings allowance/dividend allowance/CGT allowance.

At 18, if this is a bare trust, they must be advised of the existence of the bequest because at that age they become responsible for their own tax affairs.

If this is a Discretionary Trust, you will need to register it with HMRC - see below re taxation.

https://www.gov.uk/trusts-taxes/trusts-and-income-tax#:~:text=Trustees%20are%20responsible%20for%20paying,number%20of%20trusts%20they%20have.

You would be well advised to take the advice of a STEP solicitor concerning the nature of the Trust and from an IFA with expertise in trusts to be sure that you are handling matters correctly.

https://adviserbook.co.uk

dont_look_now

Do consider very seriously whether keeping this property, rather than selling it and investing the proceeds in another way, is the best way to look after this capital for your children.

One way of looking at it is: if your children had been left £550k in cash, would you have used £400k of it to buy this specific property (or even a similar one)?

Note that if one of the children wants to take out the capital at some stage, and the other doesn't, you'd probably have to sell the whole property then.

Malthusian

As Xylophone says, if it's not a discretionary trust the money is theirs, both will have access at 18 (16 in Scotland) and they need to know about it to avoid tax / benefit fraud if no other reason.

The house certainly needs to be sold as soon as possible as there is no scenario in which it is going to be a prudent investment for the trusts or trust. All sorts of issues including lack of diversification and lack of liquidity for when one wants to withdraw the money.

You need a conversation with both about when / how they are going to spend it to ensure it is sensibly invested. If they plan to spend most or all of it when they turn 18 it will need to be in cash, if they are thinking longer term then so can you as Trustee. (Assuming you are Trustee for the money.)

AnotherJoe

Invest987 said:

In short my children have inherited a property of roughly £400K and cash of £150k. They will not receive or even know about it until they are 25. One is 17 and one is 15. Where do I start? 
Fyi, if I rent the property it is likely to take £25k to bring it up to rental standard. It's so important to me that this money grows and looked after wisely.  Thank you. 

Sell the house in that case.

After that, depends so much what sort of trust. If discretionary, you've got a lot of reading to do on tax treatment, but I;d say it ought to be invested (10 year time span) if bare, then as said they will get it in a year or two and perhaps you need an IFA to help manage it advise on where to put it if if just for a one off payment.

And also, if bare and you hide it from them, then you could be in serious trouble for hiding its existence past age 18.

Invest987

MalMonroe said:

If the inheritance is in your children's names I assume you, as their parent/guardian are nominated trustee? Will you be allowed to take some of the money to do up the house? If not it may not survive for another 8-10 years if it's left. That does seem the wisest option, do it up and let it out. Or even do it up and sell it. Nobody can forecast the future but whichever way you look at it, it's money for nothing for your children. Lucky youngsters! Win-win, as I see it. 

Thank you. Yes I am the trustee. Everyone has given me some things to check out. I appreciate it. 👍

Invest987

xylophone said:

They will not recieve or even know about it until they are 25. One is 17 and one is 15.

If the bequest has "indefeasibly vested" in your children (has it?) then it will need to be held in bare trust for them - the beneficiaries of a bare trust have the right to access and control at the age of 18.

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem1563

If it is a bare trust, then income belongs to the children and is taxable as theirs - each of them has his own Personal Allowance/savings allowance/dividend allowance/CGT allowance.

At 18, if this is a bare trust, they must be advised of the existence of the bequest because at that age they become responsible for their own tax affairs.

If this is a Discretionary Trust, you will need to register it with HMRC - see below re taxation.

https://www.gov.uk/trusts-taxes/trusts-and-income-tax#:~:text=Trustees%20are%20responsible%20for%20paying,number%20of%20trusts%20they%20have.

You would be well advised to take the advice of a STEP solicitor concerning the nature of the Trust and from an IFA with expertise in trusts to be sure that you are handling matters correctly.

https://adviserbook.co.uk

How kind of you to outline some important issues. I will find out and get back to you possibly. Thank you. 

Invest987

dont_look_now said:

Do consider very seriously whether keeping this property, rather than selling it and investing the proceeds in another way, is the best way to look after this capital for your children.

One way of looking at it is: if your children had been left £550k in cash, would you have used £400k of it to buy this specific property (or even a similar one)?

Note that if one of the children wants to take out the capital at some stage, and the other doesn't, you'd probably have to sell the whole property then.

Yes if all the other questions raised are approved correctly I definitely would like to build a solid return for my Uncles money. Amazing generosity and needs respecting for sure. Thank you. 

Invest987

Malthusian said:

As Xylophone says, if it's not a discretionary trust the money is theirs, both will have access at 18 (16 in Scotland) and they need to know about it to avoid tax / benefit fraud if no other reason.

The house certainly needs to be sold as soon as possible as there is no scenario in which it is going to be a prudent investment for the trusts or trust. All sorts of issues including lack of diversification and lack of liquidity for when one wants to withdraw the money.

You need a conversation with both about when / how they are going to spend it to ensure it is sensibly invested. If they plan to spend most or all of it when they turn 18 it will need to be in cash, if they are thinking longer term then so can you as Trustee. (Assuming you are Trustee for the money.)

Once again thank you, all advice gratefully received. I guess I am passionate about them making thier own way in life before relying on this inheritance. Both of them respect money already so it should not be a problem. Super advice and lots to clarify 👍

Invest987

AnotherJoe said:

Invest987 said:

In short my children have inherited a property of roughly £400K and cash of £150k. They will not receive or even know about it until they are 25. One is 17 and one is 15. Where do I start? 
Fyi, if I rent the property it is likely to take £25k to bring it up to rental standard. It's so important to me that this money grows and looked after wisely.  Thank you. 

Sell the house in that case.

After that, depends so much what sort of trust. If discretionary, you've got a lot of reading to do on tax treatment, but I;d say it ought to be invested (10 year time span) if bare, then as said they will get it in a year or two and perhaps you need an IFA to help manage it advise on where to put it if if just for a one off payment.

And also, if bare and you hide it from them, then you could be in serious trouble for hiding its existence past age 18.

Yes I am so cautious of doing the right thing so will check with the solicitor. One FA has said an option is to have a trustee manage the money but obviously that comes at a cost. My uncle never gave a penny away lightly so am mindful of doing the right thing. It will be hard to make decisions as it's not my money so reluctant to take higher risks as I might woth a portion of my own however I would love to see some growth before my children take over as I see it as thing my uncle would be proud of as its his lifetime efforts.