Creating a passive income from £300k for daughter?

silvermum

Our daughter (22) is graduating next year and due to her career choice (the arts...) is unlikely to earn much, if anything, while she tries to establish her career.

She's extremely fortunate, however, to have an inheritance 'pot' of c. £300k as a result of grandparent deaths. It's currently held in shared property (about to be sold), S&S ISAs (mostly global index tracker funds) and fixed-rate savings accounts.

She can live at home to save on rent.
Any thoughts on the best way to generate a small income from this without reducing the capital value too much?

Albermarle

I think you need to define what you mean by 'small' .

Exodi

Many seem to suggest that 4% is a safe withdrawal rate to preserve capital (though offers may suggest lower rates or rules like reducing withdrawals during market downturns).

This would equate to a withdrawal of £1k a month - which I'm sure many wouldn't define as small.

Alternatively you could take a reduced amount to also allow the capital to grow.

Voyager2002

silvermum said:

Our daughter (22) is graduating next year and due to her career choice (the arts...) is unlikely to earn much, if anything, while she tries to establish her career.

She's extremely fortunate, however, to have an inheritance 'pot' of c. £300k as a result of grandparent deaths. It's currently held in shared property (about to be sold), S&S ISAs (mostly global index tracker funds) and fixed-rate savings accounts.

She can live at home to save on rent.
Any thoughts on the best way to generate a small income from this without reducing the capital value too much?

Is it really necessary to sell the property?

In case she wishes to claim Job-Seeker's Allowance or other means-tested benefits, the capital value of the property where she lives is disregarded. And if she shares the property with others and charges them rent, she is allowed to keep a fair proportion of what they pay before her JSA is reduced.

So it might be worth exploring whether she could use the cash and equity holdings to buy out the other owners of the property.

eskbanker

silvermum said:

It's currently held in shared property (about to be sold), S&S ISAs (mostly global index tracker funds) and fixed-rate savings accounts.

While the property is about to be sold, the decision to invest in S&S ISAs and save in (probably inflexible) fixed term accounts was presumably made earlier?  Was this in the knowledge of her financial circumstances, i.e. is it just the property proceeds that need to be used to generate income?  How much is in each of these individual pots?

dunstonh

Many seem to suggest that 4% is a safe withdrawal rate to preserve capital (though offers may suggest lower rates or rules like reducing withdrawals during market downturns).

4% is from America, not UK and was based on including capital erosion and not running for a period of around 30 years and based on a balanced asset mix.   For a younger person looking to preserve capital, a "safe" withdrawal rate would need to be lower.

As it stands, we lack data from the OP to say what could be a safe withdrawal rate for the scenario in question.  i.e. is it income for life or income for a period.   How is it going to be invested?  (20% equity mix would be very different to say an 80% equity mix).

silvermum

eskbanker said:

silvermum said:

It's currently held in shared property (about to be sold), S&S ISAs (mostly global index tracker funds) and fixed-rate savings accounts.

While the property is about to be sold, the decision to invest in S&S ISAs and save in (probably inflexible) fixed term accounts was presumably made earlier?  Was this in the knowledge of her financial circumstances, i.e. is it just the property proceeds that need to be used to generate income?  How much is in each of these individual pots?

Yes, The S&S ISAs and fixed term savings were made earlier. Nothing is especially inflexible though, as we always knew that next year would likely be a 'launch' point where investment decisions may need to changed.

Current split approx:

Property: £170k
Savings: £50k
S&S ISAS: £80k

Linton

For that amount of money, and a requirement rather more complex than many and possible tax issues, I strongly suggest that she/you pay for advice from an IFA. (Independent Financial Advisor).   Part of this advice would involve helping your daughter think through her long term usage of the money.

silvermum

Voyager2002 said:

silvermum said:

Our daughter (22) is graduating next year and due to her career choice (the arts...) is unlikely to earn much, if anything, while she tries to establish her career.

She's extremely fortunate, however, to have an inheritance 'pot' of c. £300k as a result of grandparent deaths. It's currently held in shared property (about to be sold), S&S ISAs (mostly global index tracker funds) and fixed-rate savings accounts.

She can live at home to save on rent.
Any thoughts on the best way to generate a small income from this without reducing the capital value too much?

Is it really necessary to sell the property?

In case she wishes to claim Job-Seeker's Allowance or other means-tested benefits, the capital value of the property where she lives is disregarded. And if she shares the property with others and charges them rent, she is allowed to keep a fair proportion of what they pay before her JSA is reduced.

So it might be worth exploring whether she could use the cash and equity holdings to buy out the other owners of the property.

Yes, property needs to be sold. She's not living in it. Other co-owners (family members) want their share out and all agree it's the right time to sell.

silvermum

To try to answer questions...

She will probably work very part time to cover her day to day living expenses (which shouldn't be too much if she lives at home).

The thinking on the income generated from her savings and investments is to create funding for her to launch her career. In the early days it's typical for artists to have to outlay reasonable amounts, work for free, fund their own shows, join professional organisations, attend events etc. Let's say she wanted to budget £10k for this - £500 month on-going and £4000 to self-fund her projects?

eskbanker

silvermum said:

The thinking on the income generated from her savings and investments is to create funding for her to launch her career. In the early days it's typical for artists to have to outlay reasonable amounts, work for free, fund their own shows, join professional organisations, attend events etc. Let's say she wanted to budget £10k for this - £500 month on-going and £4000 to self-fund her projects?

If the £4K is a one-off and the remaining £296K only needs to yield about 2% per year, that should be readily achievable without taking much risk.