Investment advice for 75-year old

DunnersO

Hello

I’m looking for some investment guidance/signposting on behalf of my 75-year-old mother.

She currently owns four properties.  One is her home, and the other three she rents out. Her current income is the rental receipts from her three investment properties and her state pension (she has no private pension provision).

As she is getting older, she no longer wants to continue with three rental properties, so intends to sell them. My back-of-an-envelope calculations suggest that, after paying off all costs, fees, CGT etc, she could be left with c£1.3milion.

My question relates to what is the most tax-efficient and low-risk option for her to use the proceeds of sale. She is also mindful that, while she expects to be around for many more years, she would like to leave some inheritable estate for her grandchildren.

My own non-expert view was that she could sell her investment homes and invest the proceeds in a lower-risk fund (with annual drip feeding into a S&S ISA), as a typical 5% return would generate a sufficient sum for her to live on. That should be enough for her, and would mean she could fall back on the capital sum if she ever needed to.

However, someone has suggested that she could transfer the proceeds of sale into a Trust, with this paying her a salary and then the capital sum being exempt from IHT. I’ve tried looking into this, but it’s all going over my head.

I think it could be a good idea for her to speak to an IFA, but have been struggling to get any reccoemdnations, so would appreciate being signposted If possible. I have registered with Unbiased but this has not produced any results so far.

Many thanks

tacpot12

Rather than an IFA, I would suggest that she talks to a member of the Society of Tust and Estate Planners (STEP). You can search their members directory via the button at the top of their home page here: Home Page | STEP

Lowest risk is going to be an annuity, and it might make sense to buy an annuity with a portion of the proceeds. Then bond investments (possibly in the form of a bond ladder) will be the next safest. Investing in Equities via ISAs and Non-ISA accounts will only be as 'safe' as the underlying investment. I suspect she will have more assets than she needs for her income and future care needs, so might look to give some of the money away, or start making regular payments from excess income to avoid inheritance tax. She should also hold some cash for emergencies, and to avoid having to sell equities at a time when the market has dipped. A Cash ISA can be a good option for this. 

If her home is large, she may also want to consider downsizing to a bungalow with a wetroom so that she can be prepared for anything to happen in the future.

Brie

Trusts often get trashed on here as being expensive, overcomplicated and not fit for purpose.  

The only thing that I can suggest is that if she hopes for grandkids to inherit that she remain in her home as long as possible using whatever income/savings she has to buy in home care of some sort to support her as long as possible.  But inheriting is never a guarantee.  She might consider making regular gifts if she feels confident her ££ will last as long as she needs it herself.

Keep_pedalling

As she is already well into IHT territory then gifting a good chunk of that £1.3M would be the simplest option to potentially reduce any IHT liability and it offers her a chance to see it put to good use in her own lifetime. Trusts just complicate things for her executors. Purchasing an annuity is also worth looking at. 

What is her marital status? 

DunnersO

Thanks everyone for your comments so far.

I should add that she is single (divorced 30 years ago and my Dad died 10 years ago).

dunstonh

I have registered with Unbiased but this has not produced any results so far.

Unbiased is no longer an IFA directory. Its a lead generation site for mostly national and regional salesforces.

However, rather than filling in the "get matched now" lead form, select the "Browse adviser directory" instead.


Initially, you will only see the paid entries.  Most of which will be the salesforces with their "start enquiry" lead gen box   But if you scroll to the bottom of the page, untick the following box:



This will then show you all the IFAs that are not signed up for the lead generation service.    These will be your small local independent IFAs rather than the salesforces.

DunnersO

dunstonh said:

I have registered with Unbiased but this has not produced any results so far.

Unbiased is no longer an IFA directory. Its a lead generation site for mostly national and regional salesforces.

However, rather than filling in the "get matched now" lead form, select the "Browse adviser directory" instead.


Initially, you will only see the paid entries.  Most of which will be the salesforces with their "start enquiry" lead gen box   But if you scroll to the bottom of the page, untick the following box:



This will then show you all the IFAs that are not signed up for the lead generation service.    These will be your small local independent IFAs rather than the salesforces.

Amazing - thank you.

Keep_pedalling

DunnersO said:

Thanks everyone for your comments so far.

I should add that she is single (divorced 30 years ago and my Dad died 10 years ago).

In which case her estate will only have £500k of IHT exemptions. 

poseidon1

It seems to me your Mother needs an IFA for low risk investment advice, with the starting point being looking at her last few years of net taxable rental income and seeing to what extent a conservatively constructed investment  portfolio can match her past annual income .
 I assume in this regard your mother would not wish to see a diminution in this regard?

I also assume she has had a decent accountant handling her annual landlord's tax compliance, and will in due course assist with the CGT computations on disposal?

In addition to an IFA she will undoubtedly need a STEP qualified solicitor to discuss her will and future estate planning, especially if she  has a desire to make some tax efficient provision for her grandchildren.  As a plus point, disposing of the BLT property portfolio makes IHT planning considerably easier.

As observed by Keep_pedalling her status is such that with only £500k of nil rate bands available on her death, the attrition caused by IHT would put  HMRC in the position as a significant beneficiary of her estate along with her family.

Because of this significant IHT exposure, the solicitor in conjunction with the IFA may well look at package Insurance based lump sum IHT mitigation schemes such as Discounted Gift Trusts (DGTs).

 These have a  dual function of achieving immediate IHT savings from day one due to the discounted gift, whilst permitting your mother up to 5% tax free withdrawals from the invested lump sum.  I believe this is the trust arrangement you were referring to in your opening post, and may well be appropriate as part of her income and IHT tax planning strategy.

Would be helpful to know from @dunstonh whether he has witnessed a resurgence in DGTs as an IHT planning tool given its  long established standing and HMRC agreed parameters.

Eyeful

1. donstonh, should know the best way to look for an IFA.

2. Some other sources which may be of help to you are shown below:
https://societyoflaterlifeadvisers.co.uk/
https://adviserbook.co.uk/
https://www.which.co.uk/money/investing/financial-advice/how-to-find-a-financial-adviser-afZ375F6BIiC

3. The average life expectancy in the UK, for a 75 year old female is 89 years of age.
My female friend lived to be 99 years old. So the money may need to last a long time.

Vitor

So the first question for the OP’s mother isn’t “how do I save IHT?” It’s “how much am I willing to ring-fence for my own care, even in a worst-case of £60k+ per year for nursing care?” Only once that number is agreed can you sensibly decide how much to gift, trust, or AIM-invest for inheritance.