7% return on £700,000

philiphodges

We have to sell my father’s house to pay for his care home fees.  Once sold we will have net £700,000.  If we can invest the money and (net) 7% then that will pay the fees without eroding the capital.

Who could take on such a mandate and what investment to generate that sort of yield?

Hoenir

  If we can invest the money and (net) 7% then that will pay the fees without eroding the capital.

Unfortunately such returns aren't achievable without risking the capital. An annuity might be worth investigatating to cover the care fees with part of the money. 

ColdIron

7% average total return with equities is doable over 10 or more years but not reliably and your capital will be at risk. Some years could suffer (significant) capital losses which would make you a forced seller at prices lower than you paid

10 years in care seems unlikely so for shorter periods you might be better with savings or cash like assets and accept using the capital (which is what it's intended for). Will £49,000 pa be enough? It doesn't seem overly generous especially if nursing care is required

Keep_pedalling

As the interest would be taxable you will need quite a bit more than 7% to achieve this, which is simply not possible. Assuming you are acting as his attorney under a financial LPA the priority is to put the money in risk free cash accounts. The best I think you can do is to split it into different pots, with pot one covering the first year of care costs and pot to being locked away for 12 months and so on. 

xylophone

Presumably your father has pension income (state pension at least ) to help defray the care costs?

Does he have savings?

If so, does he use his ISA allowance?

Does he have the maximum in Premium Bonds?

Is he entitled to Attendance Allowance?

Is he entitled to the nursing care component?

Savings rates here

https://www.thisismoney.co.uk/money/article-1583859/Best-savings-rates-General-savings-Internet-branch.html

Would you wish to consider an Immediate Needs Care Annuity?

https://www.moneyhelper.org.uk/en/family-and-care/long-term-care/immediate-needs-annuity

Linton

philiphodges said:

We have to sell my father’s house to pay for his care home fees.  Once sold we will have net £700,000.  If we can invest the money and (net) 7% then that will pay the fees without eroding the capital.

Who could take on such a mandate and what investment to generate that sort of yield?

I assume you have Power of Attorney for your father. Generally taking the high risks that would be required to generate 7% returns is considered inappropriate use of POA powers as it is would not be in your father’s best interest for money to be potentially lost when that is not necessary. It may be in his beneficiaries’ best interest but that is a consideration beyond your authority without the approval of the Court of Protection.

You should be using safe investments like bank or NS&I savings accounts. An annuity would also be considered an appropriate option

philiphodges

Yes , I do have LPA
 thanks for all the comments and thoughts
 Whilst 7% is not realistic likely I will go for a spread.
 Bonds + Equity

penners324

philiphodges said:

Yes , I do have LPA
 thanks for all the comments and thoughts
 Whilst 7% is not realistic likely I will go for a spread.
 Bonds + Equity

Did you read the post that stated this is beyond your role in the LPA?

flaneurs_lobster

penners324 said:

philiphodges said:

Yes , I do have LPA
 thanks for all the comments and thoughts
 Whilst 7% is not realistic likely I will go for a spread.
 Bonds + Equity

Did you read the post that stated this is beyond your role in the LPA?

Seems OP didn't agree with this advice when it was given in an earlier thread

https://forums.moneysavingexpert.com/discussion/6526857/deferred-payment-agreement-versus-house-sale

Linton

Investing for someone else is not the same as investing your own money.  In particular there are legal considerations. Some points…

Will you be able to open an investment account in your father’s name? From a quick look it would appear for example that you cannot with AJBell. Accounts must be opened by the owner but can then managed through PoA. It would of course be highly questionable to open the account in your own name.

Do you have the investment knowledge and experience to manage £700K, including for example tax optimisation? Given the amount of money concerned have you considered taking professional advice? In my view it would be prudent to do that if only for your own protection.

Is investing in equity appropriate when the timescale is likely to be short?

Keep_pedalling

None of this should be put in high risk investments, it must be managed for the best interest of your father not to maximise his children’s inheritance (although short term equity holdings is high risk for that as well)

Unless your father is likely to be in care for many years, then his best interests are to get the best care possible and with £700k cash plus pension income and AA available I would not hesitate to to spend a good chunk of that to achieve that end.