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Answers to YOUR Questions

See what's bugging others. 

And what our experts say.

General

We have four grandchildren (2 English living in UK, and 2 Irish living in Eire). We have decided to start savings plans for their futures. Their ages are 18yrs, 11yrs, 8yrs and 4yrs respectively. My age is 75yrs, and my wife is a little older. What should we do, please?

John, Buckinghamshire

01 January 2018

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Martin

It’s always good to hear about grandparents wanting to give a helping hand to the future generations. In general terms, there’s a lot of wealth inequality between the post-war ‘baby boomer’ generation and youngsters of today, with the future looking rather bleak (financially) for kids growing up. A combination of high living costs, large student debts and unaffordable property prices makes a wealth transfer the only way most children growing up today will be able to afford a secure financial future.

The range of ages of your grandchildren pose some challenges from a financial planning perspective, in terms of how you treat them fairly, allocate money to different levels of investment risk, and consider tax planning for both them and you. 

Starting with some inheritance tax considerations for you. During your lifetime, you each have a £3,000 annual ‘gift allowance’. You can any unused gift allowance over from one tax year to the next, so if you’ve not made gifts before you’ve got the potential to gift up to £6,000 in the first year. There are some other tax-free allowances for inheritance tax purposes, including gifts worth less than £250 (although this can’t include gifts to anyone who has benefited from your annual gift allowance) and wedding gifts of up to £2,500 to a grandchild.


Perhaps the most useful inheritance tax allowance is gifts made out of any surplus income you have. These need to be regular gifts and you have to demonstrate that making the gifts doesn’t reduce your standard of living. Regularly paying into a savings or investment account for your grandchildren is likely to benefit from this surplus income allowance and the best way to demonstrate affordability is working with a Financial Planner to construct a lifetime Financial Plan.

Once you have decided how much to gift, for the three younger grandchildren you could contribute to their Junior ISAs. Their parents would need to open these accounts on their behalf, but once open you can contribute towards the maximum savings limit of £4,128 this tax year. This money is then invested tax-free until the child reaches their 18th birthday, at which point they have full access to the cash, but could (with some parental guidance) choose to roll the money over into an ordinary ISA.

With interest rates so low at the moment, putting this money into cash is likely to be unappealing. Instead, you could invest the monthly contributions into an investment fund spread across a range of investment assets, to help reduce the risk. The act of investing money also helps to reduce risk over time, a process known as pound cost averaging.

For the 18 year old grandchild, your options are a little more limited. You could speak to a solicitor and create an 18-25 Trust, which restricts access to the cash until they reach their 25th birthday. From a tax perspective, this means any income within the trust is subject to income tax at the trust rate of 45% on gross non dividend income exceeding £1,000, or at 37.5% on dividend income. Depending on the size of the gifts, it’s unlikely that any income tax will be charged. Capital gains tax should also be within the trust’s annual allowance, which is £5,650 in the current tax year, unless you are making substantial gifts.

Alternatively, you might agree to pay towards their living costs whilst at University or during their first career, for a period of time. If they are still in full-time education, this category of gift is free from inheritance tax too.

Best wishes,
Martin 

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

General

I am getting long in the tooth at 79, a little forgetful and I am going through a painful divorce. This has shattered my confidence and I need help. The end result is that, folowing pension sharing (as yet not finalised), I am likely to have a much reduced pension (around £16k net). We had to sell and divide the house and I am sitting on c.£210,000. Whilst I was getting pensions pre-divorce of over £27,500 net, the reduction to c.£16,000 is going to be very hard to adjust to, though I appreciate there are folks getting less. At present I am living with a new partner who has a house and is happy to see me as a permanent feature. A friend with a successful finance track record has strongly suggested that I put the £210,000 into ETF fund ISF-L (which basically tracks the FTSE 100), use my ISA allowance and draw down on it over an estimated lifetime of 15-20 years., using the calculator at http://www.vertex42.com/Calculators/retirement-withdrawal-calculator.html. My alternative idea was to buy a holiday let cottage in the West Country, but my friend points out that this can be quite hard work, expensive in maintenance, management and booking fees and just as volatile for capital value as the stock market. Do you have an opinion, please? I am finding it very difficult to make a decision. The stock market seems dangerously high at the end of 2017.

Richard, Kent

05 November 2017

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Holly Mackay

I’m so sorry to hear you’re having such a horrible time and I really hope things work out well with your new partner and you get over the trauma of the divorce. Let me try and help as best as I can in this forum.

I do suggest that you try and find a local financial adviser to talk to. You need to make the money you have work well for you – you should be able to find someone for a ‘sense check’ discussion for a few hours which will probably cost you about £200 an hour but be a good investment. You can also try the Government’s free help service The Pensions Advisory Service. They will be very good on the pensions facts but they can’t give you individual advice on where to invest. Worth a call though to ask all those technical pensions questions to?

With the £210,000 you need to work out what your timeframes are and what you want the money to do. The benefits of an ISA is that you can stick £20,000 into it this tax year and the gains are largely tax free. And the money is accessible.

The fund your friend suggested is what we call a ‘tracker’ fund from the world’s largest fund manager. It mirrors the FTSE 100 as you say. This can be a very good foundation but it doesn’t spread your risk around enough. You’re totally exposed to the rather uncertain UK future! So you should have money invested elsewhere too or all your eggs are in one basket. 

If I were you I would have a look at Vanguard. They make funds like the one your friend suggested. But they will also do all the blending of various regions for you. So you don’t have to worry. Search for their LifeStrategy range and have a look at their website. It’s cheap and they will manage the money on your behalf, removing lots of decisions which you don’t sound like you want to make right now. You just have to pick how much ‘spice’ you want. No spice means very little upside. Lots of investment risk will boost returns but it will be a bumpy old ride. The LifeStrategy 60% is the most popular fund – have a read about that.

Now this doesn’t address your need for income. You can also invest in some funds called Equity Income funds which aim to pay you out a regular income, which could boost your pension. Look at the UK Income funds on Hargreaves Lansdown’s Wealth 150 list. As one example, the Artemis Income fund is always popular and has paid out about 3.7% of income a year. So you could split your money into 2 and have a longer-term pot with Vanguard which you just leave alone and a shorter-term income pot with Hargreaves?

Holiday lets are (in my experience) time-consuming and not that lucrative unless you are prepared to put a lot of time into it. And taps leak. And things fall down. And it’s tricky! You sound like you need an easier time in 2018 so I’d be careful with this option.

Finally yes I think the stock market is very high. But we just don’t know what the future holds. It will come off its highs at some point I have no doubt. But I don’t know when. With the 15-20 years timeframes you mention, you can ride out the ups and downs. It maybe leave yourself enough in cash to mean you wont need to sell down any investments for a few years if things do stumble. Leave a cash buffer which will tide you over when the markets are having an ugly year. The best easy access account is paying about 1.3% today. NS and I have an income bond paying 1% and they’re as safe as it gets.

Good luck. I hope this helps. I can’t give you specific personalised advice as I don’t know enough about your circumstances. I do recommend you look for an adviser even if it’s for a sense-check meeting. Unbiased or VouchedFor will point you to advisers near you. I hope 2018 brings you better luck.

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

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