Investment

[howie]

Would,nt work for me Malc. Cleaning my teeth and keeping the leaky fishpond topped up would cost a fortune on its own but those who have had a meter fitted echo your sentiments. Now here,s the question to ask. Meters are proving to be cheaper at the moment because utility companies are keen to see every household fitted with them. Once this is achieved you watch those prices rise regardless of how carefull you are and for conservation read profit.

[kelly58]

My other half retired last december so I thought whats good enough for her is good enough for me , she gets 2 pensions I only get my personnel one at moment as I do not yet qualify for the gov oap.

If we are careful we manage really well our main financial problem is the cost of heating oil as we do not have mains gas supply in our area, when we moved here 3.5 years ago 1000 ltrs was £175.00 it is now £420.00 for 1000 ltrs we use about 2000 ltrs a year so everytime it goes up 1p thats a £20.00 increase also you have to pay for it all up front it makes the goverments cost of living index a farce ar well thats got that off my chest .

[malc d]

howie - 2007-11-24 11:09 AM

 

Would,nt work for me Malc. Cleaning my teeth and keeping the leaky fishpond topped up would cost a fortune on its own but those who have had a meter fitted echo your sentiments. Now here,s the question to ask. Meters are proving to be cheaper at the moment because utility companies are keen to see every household fitted with them. Once this is achieved you watch those prices rise regardless of how carefull you are and for conservation read profit.

 

 

 

I agree with you Howie, but by the time everyone has got one I will have saved a lot of money and, by that age, probably be past caring !

 

 

 

 

[BGD]

Howie - a thought for you.

 

Getting your money off-shore is a very good way to maximise it's net returns to you.

 

Investigate fixed-return investments (bonds etc) in other countries. Especially those outside of the EU, where if you're crafty you can get the investment return free from UK taxation.

 

Then it's simply up to you whether you decide to declare that investment on your UK annual self-assessment tax return...........

 

 

 

 

[Mel B]

Oi! Stop leading Howie astray ... he'll get lost! (lol)

[colin]

BGD - 2007-11-24 1:30 PM

 

Howie - a thought for you.

 

Getting your money off-shore is a very good way to maximise it's net returns to you.

 

Investigate fixed-return investments (bonds etc) in other countries. Especially those outside of the EU, where if you're crafty you can get the investment return free from UK taxation.

 

Then it's simply up to you whether you decide to declare that investment on your UK annual self-assessment tax return...........

 

 

 

Goverment are cracking down big time on this, I think there is still an amnesty on present investments, you pay tax you don't get fine, this will soon run out and you may get taxed and fine. >:-(

[CliveH]

Colin you are totally correct on this.

 

Only the Cayman Islands refuse to sign up to the new reciprocal tax agreements. And if you have an account there - expect the Revenue to take a look at your tax affairs.

 

However, investing offshore is not all doom and gloom. In fact for most of us as EU citizens we should consider it more than we do.

 

No point in just having a bank deposit account though because if you have more money than you place in a full ISA (£7000) why expose the interest to a tax charge when you bring it back into the UK?

 

You can open an offshore investment bond though where deposit based funds are available as well as many others and these are interesting if you want "income" because even the offshore versions allow you to take 5% of the original investment back each year.

 

These 5%'s are actually deemed by the taxman to be return of the original capital sum invested and so even a higher rate tax payer pays no tax on these 5%'s.

 

There is a tax "totting up" calculation that takes place if and when you encash the lot but even then you benefit from a thing called "Top Slicing Relief". So investing offshore is a good thing in my professional opinion.

 

You can also beat the taxman in another way if you have an Inheritance Tax problem in that a slightly different type of Offshore Investment Bond can be used to great effect whilst guaranteeing income.

 

It is called a Capital Redemption Bond and when used with a Discounted Gift Trust works like this.

 

You invest the money and effectively you have said goodbye to it as it is then held in the trust. The trust then pays you income under broadly the same tax rules as set out above so that no income tax is payable as the tax is deferred.

 

Because you have gifted the capital away, the Revenue provides the settlor with an immediate IHT discount. So for an investment of £100,000, the Revenue would allow a percentage depending upon your age to be placed outside of your estate. If we say the discount is 40% then the IHT saving is £16,000.

 

And it gets better because the remaining 60% that is not discounted forms a Potentially Exempt Transfer (though the rules changed slightly for trusts so be aware things are a little different after the last budget) which means that the remaining 60% can fall outside of the estate after 7 years.

 

You have to realise that the capital is no longer yours - you have sacrificed that for income and hence the initial IHT discount and PET.

 

 

One other word of warning. If you are UK based then I feel either of the Channel Isles or IoM, Dublin or Luxemburg are OK.

 

But if you are based in another EU country or outside of the EU then be aware that the Investor Protection of Dublin and Luxembourg is better than the Channel Islands or the IoM. The reason is that the Channel Islands and the Isle of Man are UK dependent states and are not EU states in their own right.

 

[Brian Kirby]

Should you decide on a offshore scheme of some kind, do chack that the deposits are in Sterling, or you'll add a currency risk to any others that attach to the scheme.

[davenewellhome]

Spend the money now Howie, you never know how long you've got and the Gov't will take their share of anything left over. If you run out of finances in years to come then the Gov't will help you out :D

 

D.

[BGD]

colin - 2007-11-24 8:46 PM

 

BGD - 2007-11-24 1:30 PM

 

Howie - a thought for you.

 

Getting your money off-shore is a very good way to maximise it's net returns to you.

 

Investigate fixed-return investments (bonds etc) in other countries. Especially those outside of the EU, where if you're crafty you can get the investment return free from UK taxation.

 

Then it's simply up to you whether you decide to declare that investment on your UK annual self-assessment tax return...........

 

 

 

Goverment are cracking down big time on this, I think there is still an amnesty on present investments, you pay tax you don't get fine, this will soon run out and you may get taxed and fine. >:-(

 

 

Colin - that's exactly why you need to be crafty.

 

There are a number of ways around the inconvenience of the UK HMRC.

 

A good Financial Advisor can assist with explaining the various options.

 

 

 

 

 

[howie]

Would not feel comfortable investing abroad, and due to either age or mindset it has to be a solid British institution. Not happy about losing the initial lump sum as Clive suggested, and while this might make financial sense in the long run I would rather settle for less income and still have that original sum to leave to the children. Thanks for all the advice, which if nothing else has given me a better idea on how to get the most from this money, but I guess i,ll settle for the safety of the building societies i,ve dealt with in the past.

Bit of an about turn, but I think I will now open a thread on how, instead of saving this lump sum, how would be the best way to spend it.

 

Dave (spend the money now Howie). This is entirely down to you, so lets see you come up with some big ideas to match that big talk of your,s

[Guest Tracker]

Sod the building societies and their rip off rates Howie - get Premium Bonds and at least have a bit of excitement every month when the letters drop on your doormat!

[davenewellhome]

Not really big talk Howie, buy a newer motorhome perhaps? Possibly downsize your home to a small bungalow or even a park home (there are some very nice ones available now and the parks they're on tend to be pleasant little communities in their own right) and have even more money to spend?

 

Its not my money, if I had that kind of windfall right now I'd pay off my mortgage but I assume you have already done that. My biggest desire right at the moment is a big house with plenty of land where I could operate my business from. I know of one such property but its £600,000 so everything short of a lottery win is pure fantasy. :-)

 

D.

[CliveH]

 

 

Howie

 

Apologies - should have made it clearer - the trust holds the capital in trust for your children

 

So if you want a guaranteed 5% tax free income and the get the capital entirely outside of your estate after 7 years and a large %'age from day one then what I suggest is worth considering.

 

If you want the 5% "income" and to retain control of the capital then a simple offshore or onshore investment bond will work BUT on your death the capital becomes part of your estate and so may be subject to IHT at 40%.

 

Do remember that you do not have to put all your eggs in one basket. You can place some into an income producing "in trust" asset and some in an investment that you retain control of the capital.

 

I do find it surprising that when, on a Forum such as this, someone asks this question that most of the responses only give single options.

 

This as a method of mitigating investment risk is a cardinal sin. The most important factor is NOT to put all your eggs in one basket.

 

Your short medium and longer term requirements should be listed and you should set up a cash reserve for your shorter term needs via good deposit based accounts including ISA's both cash and equity.

 

Medium term you could be some fixed interest investments such as Gilts or Corporate Bonds and longer term maybe some equity based investments.

 

All of these can be accessed via things like Investment Bonds, Unit trusts etc.

 

But Investment Bonds have two considerable advantages. Firstly that Trusts can be wrapped around them easily and without usually incurring a cost.

 

And secondly as an Investment Bond does not produce income (the 5%'s are actually return of the original capital) such "income" is not taken into account when the Local Authority assesses our elderly relatives for any long term care.

 

And if the capital is no longer theirs but the trusts where a trust is used and as long there is no evidence that such investments were set up to "hide" the monies, then the capital is not taken into account either.

 

[howie]

More food for thought there Clive. Just touching on inheritance tax for the moment. Quite a large amount paid on my late Stepmothers estate which has only recently been settled. The £285,000 starting point has now been raised to £600,000 I believe and i,m wondering if this came in with immediate effect, or might even be backdated in some cases.

[colin]

You'll be lucky, not. Nil rate band is at £300,000 at moment, when higher rate comes in don't think it wil be back dated, they don't usualy with any tax allowance.

[howie]

Don,t be such a pessimist Colin. Nothing ventured nothing gained ,and while its a long shot always worth a try.

[CliveH]

Hi Howie

 

I think if the estate is only just being settled then I would think you have missed the boat on our dear Alistair Darlings knee jerk reaction to the Conservatives stance on IHT.

 

For 2006/7 the IHT zero rate band is £300K as Collin said above. In the past if both spouses wanted to use it you had to set up a Will Trust or similar. Usually linked to owning your house as Tenants in Common rather than as Joint Tenants.

 

Now the first to die of a married couple automatically gets their IHT ZRB transferred to the surviving spouse.

 

This is VERY good news for most of us. But for you Howie I think as you Step Mother probably died before this new ruling came in, you have sadly missed out. But to be sure - you should just run it by the solicitor dealing.

 

There are various allowances that can be used each year but unless there is a proven "audit trail" the Revenue works on the principle "If it is not in writing it did not happen".

 

So if you do use your £3000 annual exemption to give money to your kids - make damn sure you document it.

 

[howie]

I guess you and Colin are right on this Clive. Bit of a shame the government takes such a big a slice of something my Dad and Stepmum worked so hard for, but thats life. I will mention it to our solicitors, and thanks to you and everyone for your replies.

[malc d]

howie - 2007-11-28 11:55 AM

 

I guess you and Colin are right on this Clive. Bit of a shame the government takes such a big a slice of something my Dad and Stepmum worked so hard for, but thats life. I will mention it to our solicitors, and thanks to you and everyone for your replies.

 

 

 

Howie:

Just as a matter of interest, I saw a discussion on TV a few weeks ago about this tax and apparently the theory is that the value of peoples property increases over the years because of the 'sound management' of the country by governments of all parties.

So the increase in the value of your house is not seen as 'hard earned' but a result of a relatively stable economy and good governance of the country over a long period.

Both the main political parties on the programme agreed on this principle, so it's never likely to disappear.

 

My understanding was that the increase in value is treated like 'interest' on the amount you paid for the property in the first place.

 

[CliveH]

That is broadly how they see it. So as long as house prices beat inflation the allowance is going lag behind.

 

On a similar vein, whilst I do not like these Equity Release schemes - very few of them are actually suitable and in my view they should be banned from being advertised on TV - they do have their place.

 

5 years ago we were approached by a couple who had done all the IHT planning they could but still their children would have a substantial liability when they died.

 

We recommended an Equity Release scheme for £200,000 on a house worth £500,000 at the time. The £200,000 was placed in one of the Capital Redemption Bonds I outlined above. The discount was 23% (they were quite elderly and the discount drops with age) so we created an IHT saving of £34,700 (40% of 23% of £200,000) and as I say the remainder is a PET and so in just 2 years time the whole £200,000 will be outside of their estate.

 

This is a saving of a further £61,600 of IHT.

 

They are very pleased with the way the scheme has run as they have an income and now with the ability for the first to die to transfer their IHT ZRB, we calculate that despite having a large estate by anyone’s standards, their children should pay no IHT at all as long as one of the parents survive another two years which baring accidents they will.

 

IHT really is a voluntary tax.

 

[Guest Tracker]

My understanding is that when I die my son will get the current single IHT allowance (£300,000 this year) PLUS, EITHER the relevant allowance back dated to when his Mum died in 2004 (around £275,000 I believe) OR double the single allowance at the time of my death?

 

Nobody seems quite sure just yet - maybe the devil is in the detail as is usual with Gordon's tax changes?

 

On that basis it might be worth Howie talking to HMRC?

[CliveH]

It depends upon what gifts were made at the time the first person dies.

 

If spouse “A” died some years ago when the IHT ZRB was, say, £200,000 (for ease of calculations) and they bequeathed £100,000 to beneficiaries then they would have used 50% (£100K/£200K x 100%) of their then IHT ZRB.

 

So there, is under the new rules, 50% of the allowance unused. The current allowance is £300,000 and so on the death of Spouse “B”, the total IHT ZRB for this couple would be £300,000 plus £150,000 = £450,000

 

Where no bequeaths are made then 100% of whatever the current IHT ZRB is now available to be transferred to the surviving spouse.

 

Under the old rules, Spouse A lost the use of his or her then IHT ZRB unless something like a Will Trust or similar was put in place. And so on the death of Spouse B when no IHT planning had taken place – only one IHT ZRB could be used – i.e. just £300,000 in 2007/8.

 

BUT, thanks to some well aimed pressure, Darling introduced the transfer of the unused IHT relief from one spouse to the other. So as long as you are a MARRIED couple, the allowance of Spouse A is transferred to Spouse B less any bequeaths made at the time expressed as a percentage of the then IHT ZRB.

 

So a widow or widower dieing today where the first to die transferred everything to the surviving spouse will have £600,000 IHT ZRB.

 

[Guest Tracker]

Thanks for that Clive - that too was my understanding - but a supposedly knowledgeable friend suggested that the IHT allowance might be dated back to the time of the death of the first spouse.

 

In our case everything passed from my wife to myself so none of her allowance was used - which should make my son a happy little bunny one day!

 

Taking me, and millions like me, out of IHT is the only decent thing that this government has done for me - such a shame then that I will not benefit from it!

[CliveH]

No problem Tracker and like you I feel this was long overdue.

 

And whilst I am not a "political" person - I think we should remember that it was the Conservatives that pushed the button.

 

I personally applaud it because my two sons whilst having good income, where we live you need an income of at least £60K to buy anything half decent.

 

Without the help from their grandparents to get them started and us to pay off their loan - I doubt they would bother buying but join the ever increasing brain drain of talent and go and work and live elsewhere.