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  • FIRST POST
    • JF1
    • By JF1 16th Apr 18, 11:22 AM
    • 5Posts
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    JF1
    What to do with divorce settlement
    • #1
    • 16th Apr 18, 11:22 AM
    What to do with divorce settlement 16th Apr 18 at 11:22 AM
    Hi everyone, I am posting this on behalf of my mother. She is 60 years old and has recently been through a divorce. She now has a relatively sizable amount of money available to her, but has no idea how to make it work for her. I don't know the exact amount, but it is approximately 200-250K.

    I only have basic financial knowledge myself, so this is a bit of a fact finding mission. Her original plan was to purchase a flat for my younger brother, she could then live off the rental payments made to her. This in itself seems like a good idea to me, but it would still leave a large chunk of money sitting in the bank. I don't have any knowledge on investments, or how feasible that is for a 60 year old. She also has a small pension and a relatively simple lifestyle.

    I am basically asking for advice and ideas, and I can provide more details if required. If the advice is - go see a financial adviser - then I'll advise her to do that.

    Cheers.
Page 1
    • dawyldthing
    • By dawyldthing 16th Apr 18, 11:37 AM
    • 3,009 Posts
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    dawyldthing
    • #2
    • 16th Apr 18, 11:37 AM
    • #2
    • 16th Apr 18, 11:37 AM
    If it was me id put it in the highest interest account (might get 1.5% or so with the amount, which would make 3750 if 250k) and then use some of the capital as although you'll get less interest as you use the capital even if you use 8k a year it will still give you 30 years money
    roll on end of April 2019 *9 done* = *31 to go*
    • dawyldthing
    • By dawyldthing 16th Apr 18, 11:41 AM
    • 3,009 Posts
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    dawyldthing
    • #3
    • 16th Apr 18, 11:41 AM
    • #3
    • 16th Apr 18, 11:41 AM
    http://forums.moneysavingexpert.com/showthread.php?t=5704489
    Like this, would still give you 3500 interest so that would cover most of your basic bills then just whatever else
    roll on end of April 2019 *9 done* = *31 to go*
    • kidmugsy
    • By kidmugsy 16th Apr 18, 11:49 AM
    • 11,598 Posts
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    kidmugsy
    • #4
    • 16th Apr 18, 11:49 AM
    • #4
    • 16th Apr 18, 11:49 AM
    At 60 she could reasonably expect to live for at least another thirty years, unless she has objective reason to expect otherwise. So some of her money should probably be put into long term assets that can defend her from inflation, which usually means stocks-and-shares. She would be wise to start the ball rolling by opening tax shelters e.g. an S&S ISA and a personal pension of some kind. Inside or outside of these tax shelters, the assets bought should probably include what are called "passive" or "tracker" investments, where her money is cheaply spread over the shares of many different companies, probably in many different countries.

    If she is inexperienced and unconfident then she might be wise to seek the advice of an IFA, with the emphasis on the "I" i.e. an independent adviser, not a "tied" advisor who is essentially a salesman for one company or another.

    By the way, does she own her own house?
    Free the dunston one next time too.
    • BLB53
    • By BLB53 16th Apr 18, 11:55 AM
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    BLB53
    • #5
    • 16th Apr 18, 11:55 AM
    • #5
    • 16th Apr 18, 11:55 AM
    I don't have any knowledge on investments, or how feasible that is for a 60 year old. She also has a small pension and a relatively simple lifestyle.
    The best plan would be some sort of investment as I guess it would be for the next 20 yrs+. A financial adviser may be expensive for the residue after the flat purchase so you may want to explore whether a DIY plan is feasible.

    Maybe have a read of 'DIY Simple Investing' by Edwards and see if you think it could be a possiblity. If not then it may be possibly to invest via one of the robo advisers such as Moneyfarm or Nutmeg.

    Leaving it mostly in cash savings runs the risk of the value being eroded by inflation.
    If you choose index funds you can never outperform the market.
    If you choose managed funds there's a high probability you will underperform index funds.
    • justme111
    • By justme111 16th Apr 18, 1:15 PM
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    justme111
    • #6
    • 16th Apr 18, 1:15 PM
    • #6
    • 16th Apr 18, 1:15 PM
    there are pitfalls in buying a flat and renting it to the child.
    - lease and leasehold payments
    -flats do not appreciate in value the same as houses
    -transaction costs
    - potential for a fallout with a child - no other relationship seems to be
    as prone to resentment as landlord- tenant one
    -what if the child buys his own or relocates- would she be happy renting to strangers?
    By all means she has to do the numbers for different options.
    • coyrls
    • By coyrls 16th Apr 18, 1:58 PM
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    coyrls
    • #7
    • 16th Apr 18, 1:58 PM
    • #7
    • 16th Apr 18, 1:58 PM
    -flats do not appreciate in value the same as houses
    Originally posted by justme111
    Really? Why do you say that?

    See for example: https://www.telegraph.co.uk/property/house-prices/revealed-areas-price-flat-outstripping-everything-else/
    Last edited by coyrls; 16-04-2018 at 2:09 PM. Reason: Added link
    • Voyager2002
    • By Voyager2002 16th Apr 18, 2:24 PM
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    Voyager2002
    • #8
    • 16th Apr 18, 2:24 PM
    • #8
    • 16th Apr 18, 2:24 PM
    Personally I think that property prices are at their peak, and so would suggest stocks and shares. Specifically, the Vanguard Life Strategy, often discussed on this board. She should just make sure that as much as possible is within an ISA and/or SIPP to maximise tax benefits and limit her tax liabilities.
    • gingercordial
    • By gingercordial 16th Apr 18, 6:43 PM
    • 1,220 Posts
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    gingercordial
    • #9
    • 16th Apr 18, 6:43 PM
    • #9
    • 16th Apr 18, 6:43 PM
    She will need to bear in mind that she will need to declare the rent received to HMRC and pay income tax on it, even if it is received from a family member.

    She will also have to comply with all of the legal requirements of being a landlord, such as gas safety checks etc.

    She should read the excellent and very detailed thread with advice for potential/new landlords here: http://forums.moneysavingexpert.com/showpost.php?p=67759929&postcount=7
    • xylophone
    • By xylophone 16th Apr 18, 7:38 PM
    • 26,492 Posts
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    xylophone
    Has your mother obtained a new state pension statement?

    https://www.gov.uk/check-state-pension

    Does she own her home? If so, is it mortgage free?

    Does she still work/contribute to a pension?
    • Thrugelmir
    • By Thrugelmir 16th Apr 18, 7:49 PM
    • 59,815 Posts
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    Thrugelmir
    Impossible to comment without knowing your mother's broader financial situation.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • JF1
    • By JF1 17th Apr 18, 8:06 AM
    • 5 Posts
    • 2 Thanks
    JF1
    I appreciate all replies. I will try to give more detail, as a few of you asked for it:

    She no longer works, and she lives in rented council accomodation. I can't tell you what her monthly pension is because i don't know at the moment - it's not a lot though. She was a stay at home mum most of her life.

    A few of you have pointed out the extra requirements of being a landlord. I dont think the situation would work that way but I may be wrong; she would simply purchase the flat and give it to my brother. Rent would be agreed and paid monthly. In essence, she wouldnt actually be a lanlord. I'm not worried in the slightest about relationship breakdowns. My mum is the type of person who would gladly say goodbye to the money if she knew her son was happy. So that's that side of it. She would obviously go through the proper legal routes of declaring additional income etc.

    Investing: it does sound like a good option, but can I do this without an IFA? I mean, what's the initial investment time and learning curve? I will definitely review the articles/books you have posted. Thanks for that.

    A house may also be a possible purchase. Someone mentioned that flats do not appreciate in value the same as houses, but I have seen plenty flats that have, albeit slightly higher end ones. I also appreciate the post that pointed out the initial outlays of actually purchasing the flat, although surely that is far outweighed long-term by having money secured in bricks and mortar, plus receiving monthly payments to live from?

    Just thinking out loud. Thanks again guys, it has been great being able to turn here for advice.
    • justme111
    • By justme111 17th Apr 18, 9:14 AM
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    justme111
    is her rented council accommodation subsidised in any way - ie any means tested benefits? If so they would go.
    I am sure every parent would gladly say good bye to any money if it meant that their child would be happy- I certainly would. The issue is not so much losing her money. The issue is having to face that one is losing money because of the attitude of one's child that care about themselves at one's expense - that or a suspicion of it can be very hurtful .
    So if she would obviously go through proper legal routes then there would be extra requirements due to being a landlord - what do you mean by "I don't think it would work like that"?
    I can not tell you whether the benefit of having money secured in brick and mortar outweighs the costs of transaction and I doubt anybody could - have you actually calculated the costs to be sure it does ?
    A question unanswered - so your brother will be happily renting and not buying for lifetime of your mother ? He will not want to move anywhere ever either? And he will be happy to rent that particular apartment for years on end? What is the likelyhood that he will not?
    Last edited by justme111; 17-04-2018 at 9:18 AM.
    • JF1
    • By JF1 17th Apr 18, 10:09 AM
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    • 2 Thanks
    JF1
    No, the rented council accommodation isn't subsidised.

    "I don't think it would be like that". I would like to rephrase what I said before: let's assume she will give him the money to buy the flat. They can agree on monthly payments that she will receive without actually being a landlord - is this possible?

    I haven't calculated the costs as this is very preliminary. However, let's just say for the sake of conversation that a flat will not depreciate in value. Surely it is better to purchase a 75K flat and live from the monthly payments as opposed to eating directly into the funds over 20-30 years?

    The unanswered questions will need to remain that way. I have no idea how things will play out long term. I am only trying to gather info at this stage. I agree that this wouldn't be an ideal scenario if planned on moving a few years after the flat was purchased, but we are looking at this from a more long term point of view.
    • coyrls
    • By coyrls 17th Apr 18, 10:49 AM
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    coyrls
    A house may also be a possible purchase. Someone mentioned that flats do not appreciate in value the same as houses, but I have seen plenty flats that have, albeit slightly higher end ones.
    Originally posted by JF1
    As I posted above, there is no evidence for the blanket assertion that flats do not appreciate in value the same as houses, so when you make a decision you can rule out this consideration. As others have pointed out there are plenty of other relevant considerations that you do need to take into account.
    • Voyager2002
    • By Voyager2002 17th Apr 18, 11:02 AM
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    Voyager2002
    "I don't think it would be like that". I would like to rephrase what I said before: let's assume she will give him the money to buy the flat. They can agree on monthly payments that she will receive without actually being a landlord - is this possible?
    Originally posted by JF1
    In the short term yes, so long as all involved are trustworthy.

    Over the longer term, there are many things that could go wrong with devastating consequences. For example, suppose that he gets married and then later divorces. So far as a divorce court is concerned, the money for the flat was a gift from her and so can be split equally between the divorcing couple: or the flat would belong to him (rather than his mother) and so might become the home of the ex-wife and any children, with no obligation to pay rent (since the monthly payments that he would have been making to his mother would have been seen as gifts).
    • Voyager2002
    • By Voyager2002 17th Apr 18, 11:08 AM
    • 12,358 Posts
    • 8,440 Thanks
    Voyager2002
    Investing: it does sound like a good option, but can I do this without an IFA? I mean, what's the initial investment time and learning curve? I will definitely review the articles/books you have posted. Thanks for that.
    Originally posted by JF1
    Most certainly you can invest without an IFA (I do); it may or may not be wise to do so. If you were to follow the route I suggested (Vanguard global tracker, probably taking the form they describe as Life Strategy) you would need a couple of hours on this forum and somewhere like the Monevator blog to find out what it is and why many people think it is a good idea. If you wanted to find options that might be a better idea... there is more or less no limit to the amount of time that you could spend looking and learning how things work. For instance, there is a short Open University course on investing that is available free over the 'net that would take a couple of days...
    • JF1
    • By JF1 17th Apr 18, 11:29 AM
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    JF1
    Voyager, thanks for that. Your replies have been helpful. I will look into the investing options and also have a deeper think about the long term possibilty of a flat/house.
    • kidmugsy
    • By kidmugsy 17th Apr 18, 4:55 PM
    • 11,598 Posts
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    kidmugsy
    No, the rented council accommodation isn't subsidised.
    Originally posted by JF1
    I don't think I've ever heard of council accommodation that isn't subsidised. That's surely the whole point: to use taxpayer Peter's money to buy tenant Paul's vote.

    Anyway, subsidised or not: does she like the house, the neighbours, the neighbourhood? If so, could she buy the house from the council? The benefit is that she then wouldn't have any rent to pay and she'll pay no tax on rent avoided. The disadvantage is that she'll then be responsible for repairs and so on.
    Free the dunston one next time too.
    • grey gym sock
    • By grey gym sock 17th Apr 18, 5:43 PM
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    grey gym sock
    I don't think I've ever heard of council accommodation that isn't subsidised. That's surely the whole point: to use taxpayer Peter's money to buy tenant Paul's vote.
    Originally posted by kidmugsy
    irrelevant to the OP's question.

    also, wrong. council accommodation usually has a lower rent than the private rented sector. but the rent is more than enough to pay for the State's cost for building the council housing in the first place, plus the very low interest on the State's borrowing to finance that building. so there's no cost to taxpayer peter. though there may be an opportunity cost to BTL landlord percy.

    Anyway, subsidised or not: does she like the house, the neighbours, the neighbourhood? If so, could she buy the house from the council? The benefit is that she then wouldn't have any rent to pay and she'll pay no tax on rent avoided. The disadvantage is that she'll then be responsible for repairs and so on.
    very good point. buying her own home is a much more obvious use for (some of) this money than buying a home which she then lets to a son.

    that could be either her current home, or a different one. would she be entitled to a "right to buy" discount for the current one? is it where she wants to stay? is that likely to change (e.g. if she becomes less mobile)?
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