A million pound inheritance?

[Bells3032]

So due to the death of my grandfather my father has inherited a million ponds (yay). He is in ill health and we are keen to invest it in order to give him the best income. We were looking at buying three or four properties but have looked at the math and overall he'd get about £15k net a year out of which he'd also have to pay any repairs etc and only if rented the whole time which doesn't sound much for a million pound investment.

Any recommendations for areas to look at or other investments that give a stable income?

Thanks

Is that what your dad wants to do with the money? 15k a year isn't a huge amount and the additional stress of being a landlord won't be pleasant for him.

Don’t bother, we currently have a non paying tenant in our rented house we own. She’s not paid a penny since December 2019 and as evictions are on hold for now so we can’t get her out. Far too much hassle and expense.

If he's in ill health why not just live on the capital? At £25,000 (say) a year it would last 40 years even with 0% return.

@Sarahlou63 Is the investments thread! That's really poor advice telling someone to just live off the money with no interest.

Not sure that’s the best idea

I would agree with @Sarahlou63, just 'consume it' but spread it across a number of banks as only £80,000 is guaranteed should the bank collapse (make sure they are different banks not under one umbrella e.g. Santander have Abbey and Alliance & Leicester and some others).

...and make sure his will is updated...

If he’s in ill health then managing properties would be a nightmare for him. He would do best just living off the money and enjoying himself. Unless really you’re protecting your own interests.

He should really take proper advice as there are so many considerations such as this could give rise to a huge inheritance tax liability.

I agree with previous posters that renting property is not as easy as it sounds and if this is to give an income, you do have to be prepared to treat it like a job - you can't just sit back and watch the money roll in.

Can he pay his children's mortgages off and they pay him what they were paying on their mortgage? There may be tax implications though.

If your dad is thinking beyond investing for himself and his children / grandchildren there is so much you can do and this amount will mean a decent adviser would give you lots of options re trusts etc.

With that amount of money he should really be taking professional advice from an IFA. You will also get good advice on the Savings & Investments forum on MoneySavingExpert.com.

Whatever you do though, do not put all his eggs, or a large chunk of them, in one basket. E.g. if you invest it all in property he is going to feel it if the property market slumps (loss of capital) and/or rents drop (drop in income).

Only 15k!? We have a very small three bed that we rent out in cambridge worth about 350 and we get 1450 per month! So 15k per year even with agency fees. If I get any substantial inheritance my plan would be to buy a similar property and we would be set for life.

With that sum of money it would pay out to use a financial advisor. They would tailor plans to your requirements, plus advise on any ways to try and minimise inheritance tax if your father hopes to pass some of it on.

I would be looking at stocks and shares. The stock market has taken a major hit lately so it is cheap, find a tracker fund through the likes of Hargreaves lansdown or Vanguard.

You need a proper IFA though for that amount of money

See (well, communicate with!) a financial adviser. r/UKPersonalFinance on reddit is a really good sub also in the meantime.

My kneejerk response is look at annuities, but people who are keen to preserve the capital so they can inherit it themselves often don't like the idea.

I'm really surprised you've arrived at such a low return when looking at rental income. Depending on where you choose to buy properties and what sort of properties you buy I would expect a rental yield of at least 6%, some places 9% is perfectly achievable (although it's hard to know the landscape going forward)

6% rental yield would give £60000 and then maybe 20% of this on repairs, maintenance, fees etc, ...would be £12000 off, so £48,000 would seem realistic to me, certainly £40,000 per annum net rental income should be readily achievable. (income tax due on this) and then you have the property capital value increase over time as well.

However, as already noted - unless you hand the management of the rentals over to someone else, this is a job, and can be a very stressful one.

due to the death of my grandfather... (yay).

Nice.

He needs proper financial advice from someone who has his best interests at heart, not someone who's excited his father has died

It depends whether you're looking at solely an income/return or capital uplift as well.

I'd look at the yield (income divided by capital). The house would give a yield of 1.5% less any repairs etc. You could get that in a savings account, and probably up to 2% if you're willing to fix it for a few years. But you wouldn't get the capital appreciation (or loss!) that you might get investing in property. (Also the FSCS limit covers you to £85k per savings account so you'd have to spread it across providers).

We have an interest only mortgage so have invested in a range of equity funds (in an ISA wrapper so all gains are tax free) which we will sell to provide a lump sum to (hopefully!) pay off our mortgage. It's definitely worth getting specialist advice but these can give an income plus a capital return. The funds vary hugely in terms of risk and therefore return. Overall, in recent years, I've had an overall capital uplift of 15-30% per year, with the exception of 2018. You could draw this out to provide an income. But, equally, they do go down some years and you're sitting on a loss. Also, some of my funds are on the more risky side and most of my funds have fallen by around 20% since the coronavirus so it depends on your appetite for risk. Equity markets are particularly volatile at the moment so you might be better waiting to invest. The other advice I'd give is to check the initial fees and ongoing management fees. The initial fees can be up to 5%. I use Hargreaves Lansdown as they refund initial fees but financial advisers have their own charging structure.

I don't know much about bonds but I did read an article yesterday on bond prices falling so yields rising. Again, they may be higher risk than usual with the threat of companies defaulting.

If it was me, I'd split the money into different pots and put some in savings, perhaps a bit in property and some in equity funds. But, given the amount of money, I would definitely get an expert to advise you of the various options plus tax implications.

Don’t be obtuse Sleeping, you know quite well that isn’t what she meant.

Thanks all for the advice.

To answer questions we live in London - anything outside of London or Hertfordshire wouldn't be very manageable unless we could find a cheap managing agent. I have based most of the amounts on my own property that I rent following meeting my husband. I don't have much knowledge of rental income in other places.

To make matters more complex the money isn't actually in my dad's name - my mother passed away long before my grandfather so the money has come to my sister and I. We are keen to use it to support my father. We have looked into annuities but they would pay out less than the properties (he's only 60) and at the end of the day the money would be eaten up. My sister and I are both, thankfully, financially sound and both very keen that the no1 priority of this money is to provide income for my dad and pay for his care if and when he needs it (which I know is also very expensive). My dad is a good business man and has owned properties in the past but also not sure whether it is the best financial future.

I think we may contact a financial adviser.

Sleeping - as said that's taken very out of context. I adored my grandfather and miss him every day but this finance has been hold up for a while and we are happy it's finally being cleared and soon to be in our hands. hence the yay. The yay was obv not about the death of my grandfather.

Thank you.

I would highly recommend Fisher Investments www.fisherinvestments.com/en-gb They looked after my Dad's money (over £800k). They are very good - helpful, good customer service, excellent ROI.

If it's your money and not your father's, then surely the way forward would be for you and your sister to invest the money, and to give your dad a lump sum he can stick in the bank and draw on as he wishes? 400k each for you and your sister, 200k for him.

A million pounds sounds a lot of money but in London it won't go far, sadly.

I would try Glasgow for investment rental properties. Good rental yields here. Get sound properties in areas of demand (make sure flats have a factor - the unfactored buildings are generally a nightmare to organise repairs with other owners), get a letting agent to do the hard work, get insurance sorted and you should do well. If I were you I would go for 8 flats around the £125,000 mark and expect to get £600-£700 pcm from each. There will be extra tax llbt - additional dwellings supplement to be paid on purchase but I think it still makes sense.

I wouldn't assume you have to go with the area you know - you could go anywhere in the UK if you take a more hands off approach to renting and get a good letting agent to take charge of everything. Scotland rules may be slightly different from England however - you need to be on a register as a fit person, you have to ensure certain safety issues, and you can not just ask for your property back again - you have to give one of a few set reasons and even then the tenant might challenge. There might be other cities in England which also make more sense than London/ Hertfordshire.

Please please contact a professional. Speak to a Chartered Financial Planner, preferably interview 3. Ask them how many clients they have with over £1M invested, what is their experience is of generating income from investments? Ask them what their strategies are, how they dealt with 08 and 2020! This is a strategy tailored to your needs, one of which is to support your DF. Ask to understand what basis their advice is based (which modellers and data - not guess work and ‘experience’)

£1m could as a very rough starting point give a guide income of around 4% - sustainable income that will last over time. However how the incidents such as 08 and 2020 are dealt with and the strategies employed will impact this figure. There is research on this, data that shows how this plays out going back to 1900, there are Monte Carlo modellers that can help us look forward. It could be more and it could be less, what it never is, is a straight line of performance (anyone that uses a straight line cashflow modeller is dangerously deluded, or plain stupid).

Look for straightforward language, reasonable fees (ask for a FULL list including fund charges), hesitate when they tell you they use DFM’s (discretionary fund managers) - get the data.

If you are in London you have a lot of very good advisers. I would also suggest that you look for a woman. As an industry the women are thin on the ground, but they are far better at the soft facts and the planning not just dick swinging their fantastic investment skills (which isn’t their job) - my opinion. Women are better qualified too - fact. (more women are chartered as a proportion of the profession) .

Without wanting to offend the whole board, but what I would NOT do is take advice on an internet board, it’s good for a few ideas to explore, but I constantly read lots of inaccurate information that is misleading.

Take advice from a financial planner and also take advice from a solicitor as you will need to structure whatever you do carefully - particularly if you want your dad to be taxed on the income rather than you.

If you need a recommendation for an IFA (not tied, not a bank) ask an accountant.

@ScottishMum40 with the best will in the world a solicitor is NOT qualified to give tax advice. A tax accountant will sign it off but an IFA with AF1 is qualified.

It depresses me that every other profession gets recommended to do work that a Chartered IFA has a degree level qualification specifically in. We also have to have more CPD, longer post qualification experience than both of them. Personal finance is a specialist subject and every week I field questions from accountants, tax advisers and solicitors checking the technical details with me. I in turn refer to them for implementation of my advice, and areas that are beyond my remit. I sit in meetings several times a year with all 3 specialties in a room as what we do is different but has many points of contact. I’m not bitter though

@Bristolbitsandbobs

I’m not sure why you think a solicitor is not qualified to give tax advice. Tax is law. Agreed they should not give financial advice unless separately qualified.

My post was getting at the fact that providing an income for someone else from money a person owns potentially can be structured tax efficiently. Options here may involve a trust and a deed of variation may potentially be appropriate if within the timescale.

A financial planner and solicitor working together as suggested by my post will be able to provide all the advice required and will be able to implement it.