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Income requierd - from insurance bonds or stocks ? - help please
busy bee
Posted: 23 January 2013 20:08:19(UTC)
#1

Joined: 06/09/2009(UTC)
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Hello - me again with my 99 year old needing more income. He has a p/f worth £800,000 (ISA and stock & shares) and enough outside estate to pay IHT. Done AIM, done IHT insurance, done this, done that, but NOW we need to increase income by £-10,000 from £27,000. We only have £50,000 in ISA’s and obviously will be using then as much as we can, but they are limited each year.

Why? - To pay care home fees and perhaps gifts out of regular income. (We will give Christmas gifts out of capital).

He has some stocks which can be sold to invest in the likes of Invesco Perpetual Income etc. so I could sell £70,000 of stocks before April and pay no CGT, and reinvest in high income stocks, but would it be better to use the £60,000 approx. he has in insurance bonds inside the estate (useless IFA's never put them in trust - this includes my favourite firm's IFA's)... however.

Do I need to watch out for anything other than the amount of tax-free income he can get from the bonds (calculated by each company), and the increase in income tax after free tax is used, and the lowering of the value of the bond to the estate?

Obviously if we sell shares and re-invest them we have selling fees including stamp duty, possible purchase fees (free if we use Unit Trusts), but at least the prospect of increase in capital value of which the inheritors will get 60%.

The other option is simply to use capital for the increase, but then we can’t use 'gifts out of income' which at least have the certainty of cutting IHT.

Any ideas please from this diverse community? And please don’t suggest he spends it - he's worked all his life, built up this fund for his children as best he can, lived frugally, but now needs to live in a care home and it’s our duty to look after his money and safeguard it the best we can - (and in my humble opinion not pay an IFA 10% to recommend his own bond of bond which themselves invest in their own bonds of bonds and 15 layers down we find they are all invested in GSK, BP, RDSB, VOD etc.)

Many thanks in advance
Income Investor
Posted: 23 January 2013 22:08:10(UTC)
#2

Joined: 18/09/2012(UTC)
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I hesitate to contribute further, as I am not an expert in IHT - but IMHO insurance bonds are a con - you get 5% of your own money back tax-free (whoppee) but what is the return?

It looks like you need to watch income and CG tax carefully - outside of ISAs, have a look whether any NS&I tax-free savings might be useful.

Instead of individual stocks you might think of high-yield ETFs (I have identified a couple elsewhere on here) - this gives you diversification and no admin - just collect the distributions.

Personally, I think long-term care should be tax-deductable.

busy bee
Posted: 23 January 2013 22:19:08(UTC)
#3

Joined: 06/09/2009(UTC)
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Thak you - its a terrible outcome of this age- careful savers who now will have to pay tax at a higher rate just to fund their care. Age related allowance is a con also.

Yes the bonds were a con - but they believed anyone with a shiny briefcase and thought their children were under 10 and knew nothing. Some 50 year old children are ignorant financially but others have a brain !

Sorry also i miss-spelt Required.

ETF's sound complicated - I shall see if Citywire have an explanation - ah ha - am I shown some ignorance here ?
dd
Posted: 23 January 2013 23:06:42(UTC)
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Hello Busy Bee,

I don't think that you have stated whether or not anything has yet been taken out of the insurance bonds. The 5%s (of original investment amount) can be taken out each year, tax free, as you probably know. My suggestion is that unless you want to leave them invested for some reason, you can probably also take out the accumulated 5%s from previous years, also tax free. That might be a substantial amount, depending upon start date and whatever has been taken out already. The maximum you can take out tax free is very simple: 20 years of 5%s = 100%, which is regarded as return of capital. At the end of 20 years, whatever remains is equal to the growth on the bond. To keep life simple, it is best not to take out more than 5% plus any accumulation of the 5%s not taken. Apologies if you knew this already.

I am not an IFA, I only did "Level 3" (for personal interest), so don't take my word for it but I am sure that someone on here will be able to confirm.
busy bee
Posted: 24 January 2013 08:05:55(UTC)
#5

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Many thanks- it now appears some have nothing taken out - so in one there is £15,000 available tax free - and I know one has had all the 5% taken out. But the others have not had anything - I am waiting for letters from the companies about the tax free amount.

One good point - the companies are good at providing the info - Friends Life in particular - the IFA's dont want to know about advsing now, despite their names being on each annual statement (they get a copy), and having been paid a fee when the bond was taken out, and, more fees every time money was added.
TJL
Posted: 24 January 2013 09:24:15(UTC)
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busy bee,
You should find when you do some research that ETFs aren't unduly complicated, there are just a few things to be aware of.
I'm not an expert but they seem handy for easy diversification and obtaining income from a wide range of sources.
Good luck.
dd
Posted: 24 January 2013 17:40:24(UTC)
#6

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busy bee;17674 wrote:
....

One good point - the companies are good at providing the info - Friends Life in particular - the IFA's dont want to know about advsing now, despite their names being on each annual statement (they get a copy), and having been paid a fee when the bond was taken out, and, more fees every time money was added.


That's interesting. I had the same experience. I am a supporter of IFAs generally and no doubt there are some who would continue to advise but I suppose that it was the pricing structure with initial charges which discouraged continued interest by the IFA throughout the life of the product. IMO it is one of the arguments FOR lower commission steadily until the 20 year anniversary rather than fees up front.
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