As we seem to have some financiers posting and the d-i-y bit fairly quiet, could some thought be given to sensibly investing say 500k as a
*draw down if needed* geriatric care fund?With the current stock market dive there ought to an opportunity for profit over say 10 years but I haven't managed to get my head round how this works with managed funds.
Advice so far has been a bare loan trust but, apart from sheltering profits, does not seem to benefit from the current circumstances.
I've got some money in a managed investment bond and have arranged for
5% (of the original amount) to be paid to me in equal monthly instalments. Some years the total value goes up; some years it goes down. I think it'll last me, and I have other investments.
No. Ask an IFA, not some random people on the internet. We aren't regulated, and you can't sue us if we give you negligent advice causing you to lose all your money...
If there are two of you, 20K ISA x 2 x 10 would allow you to put away 400K over 10 years. If you invest the rest outside an ISA wrapped, the non-ISA funds will attract tax, but you can sell and transfer 20K to each ISA each year.
Depending on your age you might be able to use a pension wrapper.
What's your risk appetite? How much could you cope with losing? It sounds like you don't have a long time you can wait for the market to bounce if you lost a chunk of your money. That would suggest you'd need to invest in lower volatility investments.
Theo
I'm not clear how that differs from "investing 500k I might spend or might bequeath" - i.e. you exclude only things that close off choice (eg assigned life polices assigned). So you might do better to look for a wider review, possibly including IHT planning. Bear in mind too that (a) it's so far still a minority who need a lot of care and (b) average stay in residential care is only 2 years.
With 500k to play with look for a professional (regulated) adviser. Some have special knowledge of care fees - eg long term care insurance. Expect to get an initial chat for free but then to pay if you go ahead.
Alternatively convert it into Swiss Francs and bury it where it'll be safe from negative interest rates - though your quality of care may not be safe from you forgetting where it is ;)
Nothing random about this group.
We aren't
But don?t have a vested interest in what is recommended.
:-) Point accepted. Worse still if I take my own advice!
That would work. What happens to ISA wrapped funds on death? The last one of us standing is likely to have more than the current IHT free threshold.
We are both 75+ so I think that is behind us.
As a retired farmer I am looking at the various NFU mutual funds. They offer a range of risk 1-6: bonds to the esoterics. Downside with them is the 3-5% investment charge.
Minority long term care noted but my wife's family have a history of such need either live in or institutional.
:-)
>
Watch out for any financial advisors tied to one particular company. The advice could cost 6% of the total amount you wish to invest.
When I was looking at the possibility of cash draw down for part of my pension I found that the ongoing fees from the companies providing this service in a pension wrapper could be quite high seriously limiting the potential for growth of the remaining funds that haven't been drawn down.
Read the small print very very carefully.
Open an online broking account. Search the top performing funds over the last 5 years Invest in the top 5 100k each. Go for global capital growth unless you need the income, and wait for about 2-3 months before popping the cash in till COVID 19 panic subsides. You will be able to sell at any time.
Those aren't Independent FAs, they're just salespeople. IFAs should be 'whole of market', however they're limited in the range of products they can advise on. If you're after Bitcoin or Cape Verde hotel 'investments' then they won't advise you - which is a feature not a bug!
You don't have to have ongoing servicing, you can just ask an IFA for one-off advice. If you understand what's going on it's possible to DIY from that point onwards, but the risk of screwing it up falls on you :) It's worth keeping an eye on costs if you do DIY though.
Theo
You really need an indpendant tax adivsor for that... The IHT rules are anything but simple. A good IFA ought to have the knowledge required. Note IFA, the people you are talking to at the NFU are probably tied to the NFU and can only recomend NFU products.
You can inherit your spouse/civil partner's ISA lifetime allowance (in other words, you can put the same amount of cash they had in an ISA into an ISA in your name), but I don't think you can inherit their annual allowance (so your annual deposit limit is still 20K not 40K).
Typically the 3-5% charge is just commission for the salesperson. Most funds can be bought without paying an upfront fee if you go via the right broker:
However there are probably better/cheaper funds out there than the NFU ones
- they might just be selling to a captive ex-farmer audience.
One of the things an IFA will do is assess your risk tolerance. Can you cope with a 40% drop in value, for example, or would you panic and sell up? Once they have that they might suggest a portfolio to match. If you aren't paying for ongoing servicing it can be relatively cheap to source that from an online broker, although there's something to be said for having someone to look after it if one of you is no longer around to do it.
Theo
IHT at large is indeed complicated. But if people have simple circumstances and simple objectives it's not too hard to do a bit of DIY assessment of the pros and cons of IHT avoidance. I know couples who concluded it wasn't because (a) each wants to leave all or most to their partner or, if s/he dies first, to their common children, and (b) also wants to keep open the the option of spending everything on their own care. (Others of course have different priorities and e.g. are happy to put their faith in taxpayer-funded care services in order leave more to their families by way of lifetime gifts, settlements etc.)
For some it helps too that IHT now comes with a built-in avoidance device: the main residence allowance. That'll allow by next year parents who leave their home to children/grandchildren to leave £1m tax-free (if the estate is not over £m2).
As for ISAs, they are part of the estate for IHT purposes. Like other property they pass free of IHT to a spouse or civil partner (or charity) but not to others. Oh, and a spouse/partner can keep the tax-free ISA status of what they inherit.
The ISA funds will form part of the deceased estate for IHT purposes but they can be 'inherited' by the spouse and the interest will continue to be tax free. Note that inheritance ISAs do pay a much lower rate of interest generally though
IHT allowances are transferable and so is the residence relief. This tax year a couples combined allowance will be £1m. Gifts given attract a taper relief and 7 years after the gift become tax free.
Annual gifts of ISTR £3k are exempt as are gifts out of income (set these up on a monthly payment basis ideally).
You should begin to think about ways to transfer your estate to your daughters to mitigate future IHT liabilities and to keep your joint estates to less than £1m (currently) to avoid IHT.
In terms of Wills, these can always be varied *after death* to mitigate IHT liabilities. Solicitors prefer to do this by Deed but HMRC are happy to take a witnessed letter as long as the contents meet the requirements for it to be valid. One advantage of a Variation is that it may use only a proportion of the deceased exemption rights and the unused percentage passes to the spouse. It is this *percentage* but of the current allowance, that is then used on the second death.
By way of example
Death in 1995 used 30% of the then allowance of £150,000. Death of remaining spouse in 2019 gave their personal allowance of £325k *plus*
70% of the unused portion of first death so 325x70%= £227.5k so total tax free on second death is £325+227.5 =£552.5K. I've ignored the residence allowance to keep it simple.I reckon you need to talk to a tax lawyer/accountant to work out the best ways to transfer your estates whilst still giving you the funds you may need.
£3,250
And walk away from any IFA that doesn't do one, which should be quite a lengthy questionaire.
It's a detail but that conflates 2 separate IHT exemptions:
a. the £3,000 annual exemption; and
b. gifts which are normal expenditure out of income - eg for a birthday, Xmas, parallel parking the car in one move...
I was referring to the high ongoing fees or management charges in some draw down products related to pension wrappers rather than anything the IFA may charge.
That's exactly what I'm doing. I have a variety of pensions from different jobs one of which was based on a final salary. Some of my pension fund has been used for annuities, I have taken some tax free cash and that will be used as the emergency fund with £Xk per year used as my draw down to spend. I still have a pot of money invested as stocks and shares within a pension wrapper and although the value has fallen in the past few weeks I can afford to wait a couple of years before really needing to draw on it.
True, some of the higher fees/costs can be in funds that have done badly in the past 5 to 10 years.
I'm happy to be picked up on detail. I realise I also said 'this tax year' regarding the total £1m when I should have referred to next tax year. I was just assuming that Tim would live long enough to struggle into the 20/21 tax year...(cough)
IHT does have lots of gift free situations and its worth getting to grips with them all. This is not always as easy as it sounds hence the suggestion that Tim see an expert in the field and consider his estate and its opportunities more widely than he perhaps is at present.
HomeOwnersHub website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.