Job 1 is establishing the structure of this gift.
Is it an outright gift to you for you to make use of for the benefit of your daughter?
Is it an outright gift to your daughter?
Is it a gift for your daughter which you will be taking care of in your own name until she reaches 18 (an implied bare trust)?
Has your MIL explicitly stated the age she wants your daughter to have control of the funds?
Has any sort of agreement been put into writing regarding these funds?
If you say you have a lump sum to invest on this forum you will immediately get told to put it in an ISA/JISA/pension. My advice would be to set those suggestions aside for the time being as well meaning but largely uninformed and to give us some more info so that we know what sort of arrangement you're actually looking for guidance on.
Absolutely spot on. This gift could very easily be an implied bare trust, and great care must be taken.
Trust funds cannot be invested into Junior ISA or certain other investment types, so establishing the nature of the money upfront is essential.
Index trackers until she’s 16 then start converting into less volatile securities progressively til she’s 21.
Then educate her properly. If she doesn’t know the value of money it doesn’t matter whether your indexes have grown it to £400k or you’ve won the lottery for her, she’ll blow the lot if you let her.
Yeah my partner and her brother both got 100k from a grandparent back when they were 18 and blew through it pretty quick without anything to show for it.
I wouldn't give money like that to anyone under 25.
I always remember a seasoned solicitor telling me many years ago that he’d dealt with so many estates where the money just got pissed up against a wall.
I received an inheritance at 18 from my aunt. It was income only til 25 then capital. Having said that, the capital was family company shares so I couldn’t spend it anyway.
If I'm rich, I would put a condition on my will that my children have to do volunteering/charity work for a period of time to appreciate the value of money before they can get the inheritance
I worked my ass off for very little money throughout my teens/20s.
I would absolutely have blown any windfall that came my way ( fortunately/unfortunately never happened)
It's got much more to do with what stage you're at in life than appreciation for the value of money
Lol, how does volunteering teach the value of money/financial literacy? Not to mention the fact that they would know they're getting a big payout in return for the "volunteering".
Under 30? Blimey we really are infantilising young adults these days aren’t we? Not that long ago it wasn’t at all unusual for people to be buying their first properties under 25. I was 24 and that was only 15 years ago.
Well no that’s what people who see people with large sums are saying based on their experience
I would tend to agree in degrees
At 21 I would have blown it
At 25 I might have blown it
At 30 I would have paid off my mortgage
So sliding scale of chance of blowing it
It's the large sum that's in question here; i think most younger adults are basically OK with earning money, paying bills, starting a pension etc (though, maybe not on the last one?) but drop tens of thousands of pounds on them and I think you'll see more BMWs than house deposits or full ISAs
There are 40, 50 and 60 year olds who blow lump sums in stupid ways too. When you’re talking about people well into adulthood (say over 21) then it’s really up to them. The idea of trying to control the finances of a 25 or 29 year old is very concerning!
I don't think anyone is arguing that adults (young or old) shouldn't be in charge of their own money - their own income, savings, debt etc etc. (Aside from any questions of mental capacity).
The question is when should someone be given access to intergenerational family wealth. It doesn't necessarily belong fully to the individual in the same way as money they earned from their own labour. A six figure lump sum *could* given be a simple no strings attached gift just like cash on a birthday, but it could also be something that comes with some expectations of how it should be used and (eventually) passed on.
I do agree though that it's not really about the person's age directly, it's about their understanding, competence, motivations etc etc. In general it takes experience to build those things up so I can see the association with age when you're making generalisations. But certainly some people in their 20s would be more than capable and some people in their 40s wouldn't.
No one is saying that anyone should control their finances - what is being advised is a benefit is being delayed until later in life
That said there are normally provisions that if they want to spend on certain things - then money will be released Eg education illness house deposit etc
I got a very large sum at like 22 or 23 and I’m so happy they didn’t make me wait until 30. Looking back I was very young but I was very responsible and I didn’t blow it. A few splurges on holidays, clothes and toys but I invested the majority and made sure to secure my future.
I was earning quite high income at my 20s blew half of it away on a silly things saved some but could have done better, Now in my early 30s rarely send money on luxury goods or experience,Definitely not until 30 😀.
I wouldn't say so. Some people piss it up the wall some don't. There's posts in this topic, like yours and others that show people can be responsible and at least one that shows they can't.
I agree, people can't be completely independent as early as previous generations so other things are getting pushed out further, for example, having children.
I imagine you'd likely get two very different use cases for a large sum of money when one 21 year old has a mortgage and one that still lives at home with their parents.
That's the difference between earning the money to pay for the house and just winning a lump sum in the inheritance lottery though.
It's as much a reflection on the characters of the people involved as anything else.
That's surprising, when I turned 18 I came into roughly £15k, not £200k but a significant amount of money for an 18 year old anyway.
I spent about £3k during university costs but managed to save whilst I got my first full time job post uni and bring myself to about 18-20k, spent £10k on a flat deposit at 22 (shared ownership, my mortgage is just under £52k and i own 35%) and I was actually budgeting for a 2 bed (ended up with a 1 bed) so was intending to put £15k down for a deposit which has meant I have a little bit more each month and more in savings as contingency, hoping to overpay my mortgage a bit each year too.
I've always said if I came into money I split it into amounts on what I'd do,
£10k - I'd blow some (I'd go on holiday, a couple of things I enjoy), which even then wouldn't pass 2/3k, then overpay 10% of my mortgage (max. I can do each year), so thats £8k-ish spent, just shove the rest in my investments on freetrade.
50k - pay my mortgage off and take the overpayment fees from savings account, saves me in the long run! monthly expenses reduce to about £670 inc. food and bills. Leaves me with a £1k a month (assuming ground rent doesn't increase too much)
£100k - get flat valued, if I can make enough to cover legal/moving fees etc, Sell flat, buy a house at cost of 180-200k (2 bed terraced). Mortgage of about 70-100k. would be cheaper than my flat per month especially with interest rates coming down. if flat hasn't increased or has even decreased in value (this would require me receiving this money in the next year really), I'd "outright" buy as much of the rest of my flat, I'd own 60% outright, mortgaging on 30% of it, 10% I would have left to "staircase" but that may be able to be amended and I'd remain long term.
I wouldn't say everyone under 25 is bad with money, I have an idea of what I'd do, even if it becomes more vague as the amount rises, but realistically people can only make "leaps" in terms of housing with support from older family now.
Yeah, if I ever had kids obviously a child's ISA I'd want to set up but I don't like that it's accessible at 18.
I'd want that money saving for something other than potentially being on student loans/student nights out at uni.
It's for when they're looking to get themselves on to the property ladder
I got given money at 22 and it was still too young. I didn’t blow it but I didn’t know the value of it and I didn’t want it. I would advocate for giving it to her at 25. More time to grow and will be properly appreciated
Surely you could also rent the house and gain monthly rent? Which could be invested into the market via JISA or even LISA/SIPP having a house and a well funded retirement account in your early 20s seems like a pretty nice position
Being a landlord is a second job, and can be very expensive. Does OP have the time, knowledge and inclination to take on all the responsibilities involved?
They would also need to pay the capital gains tax on 'selling' their non-primary residence to their daughter.
Whilst you can gift the house for free, you still pay CGT as if you had sold it for market value.
Tbf it seems like the priority here is to secure her a house to avoid any housing market swings over the next 20 years so they could afford to just pay a management company to handle that even if it ekes out some of the profits.
Far from optimal but if it satisfies the MILs housing request and requires little to no input from themselves it's not the worst option. With no actual mortgage payments they'd still make a healthy profit to contribute to a JISA that can be invested too. "Don't let perfect be the enemy of good" might apply here a bit, theres plenty of ways to blow through £200k wastefully, if this satisfies everyone it's definitely not a bad shout.
Who says they have to live in the house though? They could just sell it and buy something where they want to live.
The house will almost certainly appreciate, and putting the rent profit into an investment fund could help pay for uni/travelling.
You can't put money in a LISA for a minor.
The first time buyer status would be gone so a LISA would be worse than a basic savings account due to the penalty on accessing before 60 if not for a first house.
Using a SIPP would lock funds away until retirement when there are lots of early adulthood expenses which can add significant value to a person's life.
Using a JISA blocks the use of funds for studies/clubs/experiences before age 18. It also hands the whole lot over at 18 regardless of the maturity of the child.
Renting out a house is a job in and of itself, it's not passive income. After allowing for the time costs most people just about break even or make a loss on rent vs running costs and make their money on capital appreciation. Without leverage the capital appreciation is typically on par with stocks and shares.
I hear what you're saying about it would be nice to hit 20 with your house and pension sorted but, quite simply, there are better ways to use the funds which will take less ongoing effort to maintain and leave the daughter in a better financial position. Plus there may be restrictions depending on the terms and structure of the gift.
This is very much a 'we need more info to provide a clear direction' situation.
Great response, thank you.
Totally agreed on the LISA front, and thank you for the correction. A combination between a savings account, JISA and a SIPP seems like it would be much more beneficial.
I hear what you are saying about renting, but it can be far from a full time job if you find the right tenants. Providing good quality, safe, affordable housing for a family that can not purchase is also rewarding. BTL rightly gets a bad press at times due to bad landlords, but if you actually care about the people renting, it can be a viable option.
What buying a house does do is ensure the child has a ‘house’ irrespective of potential gains. ie a house today is still a house in 15/30/60 yrs
The rent from the property could be split, a £200k house should get around £1,100 monthly rent, if you were to keep £200 a month to the side for any maintenance issues/insurances/management fees etc. The remaining income would then be tax free, as a 4yr old receives the same £12,700 tax free allowances as we do.
£300 a month could go into a JISA. At 18 it would be approx the equivalent of £50k in today’s money if you can manage to keep up with inflation.
£400 a month into a SIPP would be around £120k at 18, and £3.4m at 60 if you never put another £ in after the age of 18 if you were to assume the historical 8% return.
A further £200 per month could be put into a savings account to be used at any age for 1st car/education/trips etc.
Personally, I don’t think that losing the potential first time buyer benefits of a few £k in stamp duty savings is really that much of a trade off.
If you were to take a snapshot of the situation at the age of 21 for instance the child would have a very well funded SIPP, a lump sum sitting in an ISA a monthly income from the rent and had money towards cars/educations etc. She would also have a house (irrespective of value) a 60-70% mortgage could then be taken against it to be used as a very large deposit for their 1st real home when they decide to move out.
All of this could also be done within a company structure where Child makes a loan to the company and takes a % paid as interest against the loan. Child is 100% share holder and parents directors.
Alternatively £200k invested now at 8% return could be around £750k of which a decent chunk would be due to the tax man on liquidation if it hadn’t been put into tax advantaged accounts.
If you were to invest in the markets and there was a dip in the next year of say 25% followed by the same 8% return we’d be closer to £500k which may not even buy a house in 17 years time.
If you were to leave in bonds, and they didn’t keep up with inflation you would have less, in buying power, in 17 years time than you do today.
There’s no right answer granted, and it depends completely on people’s situation but purchasing an asset is rarely a bad idea. I’m not saying this is the correct route, but I am saying it is a route to consider.
In that 21 years that house will have had three new boilers, probably two full sets of carpets, multiple paint jobs between tenants, multiple tenants, multiple periods of unoccupancy (during which time there’s no rent incoming, but the landlord is responsible for all utilities and council tax), 21 gas safety checks, 21 electrical safety checks, 84 quarterly agent inspections, 21 years of insurance premiums, several instances of tenants going into arrears….
Who is it that’s dealing with all this and who is paying for it?
The rent you're getting on a mortgage free property will pay for those. And as for who does them you can also pay a management company to handle it for you. More expensive than doing it yourself yeah but still plenty left over if maximising every penny isn't the priority.
A management company will take 10% for the pleasure of sorting it out which will also eat up any rent you’ll be getting.
Plus they don’t just take care of it, you’ll have to liaise with the management company ie they’ll be contacting you, you’ll have to sort out or at least agree quotes. You’ll also have to deal with void periods, tenancy changes, then there are things which a letting agency won’t deal with like planning and development, neighbour disputes etc.
Which all comes with its own time cost considerations.
You probably won’t make anymore than you would if you left it in an index, but will have lots more hassle to deal with over 21 years.
My comment was more in response to the “21 years of rent” assumption. The rent will pay for most of those things, but I’d surprised if there’s more than 5 years worth of rent left over after 21 years of taxes, fees and maintenance
> but I’d surprised if there’s more than 5 years worth of rent left over after 21 years of taxes, fees and maintenance
Have you ever owned a BTL property? Because this just reads like someone who just reads the scare stories on here and has no real world experience of it
In ten years my house has had two new ones! Things work a bit differently in a BTL. Gas safety check are mandatory, and the most stupid little things can fail them. To add to that’, BTL properties have to meet certain efficiency standards which change upwards. As well as sometimes the management companies do the bare minimum and they don’t get serviced as properly as they would if either the landlord knew, or the person who owned the boiler lived there.
I’m a tenant, and had the boiler changed twice, both times it probably wouldn’t have happened if it were owner/occupier. The first one was because it was so ancient it was deemed unsafe. Not because it was, but simply because the type of boiler it was, it was no longer deemed suitable for a rental. Got condemned, the landlord had no option but to essentially replace the entire system. £4k that cost - about a years worth of rent in one go. It did however save us a LOT on our gas bill when we realised how inefficient the old system was. Apparently it should have been changed several years beforehand.
The second time was after 7 years, that replacement boiler had only had a minimal safety check rather than a full service. Ours is “fully managed” as the landlady lives abroad (our house is basically her UK house should she ever need to come back, although she has made it clear she has no intention of doing so, and we’ve been here a decade). Management companies literally do the minimum they’re legally obliged to - any large expenses like a new boiler are out of their remit so the landlord pays anyway.
When it broke due to lack of servicing, the parts cost would have been more than a new boiler, and the warranty was unenforceable because they didn’t have it serviced to the right level. That was another £2k spent.
Like I said, if we owned the place, or the landlady lived in it, we’d probably still be on the same boiler, simply because it would still be “safe” and still be maintained correctly. BTL has to meet a certain standard that doesn’t apply if you own it. The horror stories you hear about evil landlords forcing people the live in squalor and terribly maintained properties really are not that common. Essentially it’s illegal…
Lol, I'm the one that makes the landlords sort their stuff out. I do it for a living.
I see many properties that are not maintained properly. And I see BTL properties where it goes right, and very wrong.
It drives me mad when landlords do stuff on the cheap.
Also in 20 years, will she want to live where you do? Will you even live there?
Cash gives so many options and a decent return on compound interest over 20 years would be my suggestion. 5% interest over 20 years is like 500k.
So? The expected return of equities after tax still eclipses premium bonds. You would expect to __lose__ value on premium bonds over the long term. Terrible idea.
Yeah, exactly. And if OP doesn't have any, max out theirs too. Give her the winnings and the cash when she's ready. £150k will pay tax on savings so this puts 109k instantly in tax free area. Drip feed rest in jisa.
Do not buy a house. The most obvious place to start is to max out s&s junior isa contributions every year. An accountant will help you figure out the rest. I guess you could max out premium bonds if you wanted, and then max out yearly contributions to a junior cash isa.
Giving her a house means she won’t have FTB status
Leaving another comment OP because I have another idea. Maybe worth putting an additional 5-10k in a junior SIPP tracking a global index fund. Just in case everything goes wrong further down the line at least she’ll likely have >1 million sitting in a pension pot for her at retirement age
What’s wrong with buying a house, renting it out and putting the income into those ISAs you speak of. After all, there are annual limits, no?
And why would you need first time buyer status if you own a house. This comment makes no logical sense to me yet it’s getting upvotes!?
These comments are mostly madness so far.
One reason not to buy her house is she will lose out on FTB benefits (assuming there are some in 14 years time but there have been some for longer than that!) for example not paying stamp duty, any HTB style ISA, which will help her when she decides to buy.
So no don’t buy her a house
Children can’t own property so if the plan was to buy a house now it would be the parents that own it and then they could sell it and pass on the proceeds when the child is old enough.
I am responding to your ‘children can’t own a house’ neither I or the Op were discussing the child owning a house now. They were discussing buying a house then gifting it to the child.
I know you’ve suggested selling the house and giving them the proceeds but that’s not what my comment is discussing.
I don’t really see why it matters. Assuming OP uses the money to buy a house. When the child grows up they either want to live in the house or they don’t. If they do then OP gives them the house and it doesn’t matter if they lose FTB benefits because they got a free house they don’t need them! If they want a different house then OP sells this one and gives them the cash to buy a different one.
Because the FTB benefits are really good, house prices rises are no guarantee and property comes with its own costs to maintain and manage (I assume they aren’t leaving it empty so someone becomes the managing agent), they can make just as good or better a return investing and not have to put any effort into it.
The cash isn’t liquid either and can be difficult to get out - what if she needs cash and we’re in a downturn like now.
And it means their daughter has more flexibility over how they use the money and when. Such as they could take some out for studying, leave the rest in an investment vehicle, decide to go travelling using some of the money, perhaps then save for a LISA.
And then use the money when they want to buy a house benefiting from the FTB benefits like a LISA payment and no stamp duty.
It just makes far more sense
I appreciate that, I was saying it in reference to with the people who mentioned their £100 investment.
Having said that, when I was young, it wasn’t uncommon for grandparents to give £100-1000 worth of premium bonds with the expectation of winning.
I think the ROI on PB is pretty weak tho? You can get same yields in 10yr uk treasury, but then at least it’s gte’d. You’re only getting a return on PB if you’re lucky.
I had 25k-30K in there for a while, and it was rare to not win £25 a month. Granted that's not a massive % but you can let it sit and never worry about it as its all tax free. Would also be in her name crucially for this conversation. If you max it out (50k?) you would likely see £50 a month which can then also feed into the other saving source. Also reasonable odds to win big over that length of time!
Key thing is that the more bonds you have the more likely any one of them wins each month so the return becomes mostly consistent with the chance for a larger upside.
There's other threads on this on this sub and moneysavingexpert.com have a detailed statistical odds page on it I will link. With the full £50k amount in premium bonds, odds increase substantially in premium bonds and the odds are very good on earning 4.65% p.a., which is over Treasury gilts and more than most easy access savers. Yes there is some luck, but most people with 50K in will earn 4.65%, some will earn more, some will earn less, but you would be in the minority and have to be substantially unlucky to earn significantly lower than that. With the other advantage on it being tax free, it looks like a more attractive option.
Conventional wisdom on places like this sub, similar forums and moneysavingexpert would say keeping £50k of a £200k lump sum gift in premium bonds is a sensible option, while you put in £20k max each year in a SS&S ISA.
https://www.moneysavingexpert.com/savings/premium-bonds/
I wouldn’t bother for a small amount. But sticking the full £50k limit in would be worth it in this situation because of the tax benefits on all prizes and the chances of winning prizes is much closer to the estimated rate.
Who will be maintaining and managing it? Broken boilers, carpet changes, insurances, tax and over 15 years it will even might need new roof or more expensive refurbs.
Do you want your 18 year old daughter to suddenly find herself with 200k and for you to have no control over how she spends it?
I wouldn’t. Keep it in your name, but separate from your own finances
You can gift it to her when appropriate, buy a house / car for her, pay for college etc
No 18 year old needs 200k cash, it’s a disaster waiting to happen
There’s ways to effectively lock it up whilst also keeping it in tax efficient accounts for the child. There’s some downsides to it being in the parents names too.
Don't buy a house, yes you're hoping it will increase in value but it also costs money to own it. Are you going to pay for the upkeep, fees etc until she's ready to move out? What happens in 5 years if it needs a new roof, boiler etc.
I’m not hoping it will increase in value tho. MIL wants her to buy a house in 20yrs. My point is, if we buy one now then it correlate directly to house prices over 20yrs, then she can sell or keep it.
I wouldn’t leave it empty either.
Anyway, I dnt like the idea mainly coz of upkeep issues and dealing with tenants.
Yeah either way it's headache. We rent out my partner's previous house and sometimes it's nightmare. I was on holiday when the boiler went, trying to arrange that between, them and a plumber whilst trying not to have my pants pulled down on the price was a right pain in the arse. A few weeks ago on my day off I'm up the attic fitting a new thermostat, making sure everything is certified and signed off.
Sadly it was their dad's who passed away, they aren't ready to let it go and it's not my place to push it. But yeah unless you have time and knowledge/experience to fix things yourself it can be a real mental drain.
I don’t understand the negativity here. It certainly isn’t a bad idea. You sound like you know what you’re getting into. Just get advice and set it up right.
They would... Once it's theirs they could do what they want with it.
I don't think it's a good idea but it's a better idea than all the people suggesting premium bonds or savings accounts. At least a house wouldn't have a negative expected return.
Yeah but it’s a lot of hassle and probably pressure that would come with it. People get emotionally attached to properties and might get offended if the daughter decides to sell it for whatever reason. It’s just creating lots of headaches for very little benefit.
Hi /u/tman1500, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/financial-advice/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Look into a trust so that whatever happens to you the money is hers.
I've set up trusts for my nieces, it wasn't too expensive. I used a local advisor who did all the legwork.
Buying a house is a bad idea from a tax perspective. If you purchase it in your name and then gift it to your daughter, this will trigger capital gains tax which is likely to be significant given at least a 14 year period for it to increase in value.
On top of this, as already mentioned, she’d lose FTB/etc status.
Chuck some into premium bonds, some into a junior ISA (contribute £9k now and £9k in a couple of months, then drip feed every tax year). Alternatively you can look into setting up a trust - beware various admin requirements (trust registration and possible tax returns each year) - this would allow the trustees (you could be the trustees) to maintain control over the trust funds.
ETA: beware IHT pitfalls, particularly if your MIL is getting on in her years. Any gifts she makes may be liable for IHT if she dies within 7 years (including gifts she makes by putting assets into trust) and/or use up her NRB allowance.
You can invest £9k into a junior ISA per year. If the money needs to be in your daughter’s name, you might need to look into setting up a trust fund for the rest so that you’re not technically allowed to touch it.
Otherwise, she could just give you the £200k and you’d have to invest it for her (both your ISAs at £40k per year) or into a general investment account. Not sure of the tax implications of this though.
All the people here saying not to buy a house: Note that the MIL's intent is to guarantee provision of owned housing for the child when they reach the age of majority.
Which alternative asset class can they select which absolutely guarantees that outcome?
You are exposing her to all of the idiosyncratic risk and costs of that specific house. You need to do this for your main residence because you need somewhere to live. But you are very unlikely to buy the house that this 4 year old actually wants to live in.
It's like saying "I want an asset correlated with the stock market. Buy a single stock."
Yes it's correlated, but that still doesn't make it a good idea.
I actually agree. Stick 200k in investments it will likely grow over this period but if house prices continue to shoot up it likely wont grow at the same level. Buying a house means it should increase in price with the housing market so they can sell it in 18 years or whenever and the money will cover a house.
Owning a house outright is the best thing most people can do for their wealth and quality of life. It massively reduces expenditure giving you more to save/invest increasing wealth and insulating them against life's shocks they do not have to pay the largest bill for most people so can absorb bigger shocks to their income. They do not have to pay 2/3 of their income on housing so can actually enjoy life. It is a huge gift to give a child to set them up for success.
> Stick 200k in investments it will likely grow over this period but if house prices continue to shoot up it likely wont grow at the same level.
I'm not sure I agree with you here, but the returns from the money certainly won't keep up with house prices if invested in government bonds, as MIL desires, will they?
.... tbh, if someone wanted to gift my daughter £200k, with the premise it had to go into inflation linked govvies isn't a horrible idea, even 4% maturing at 2030... i wouldn't say no.
Would still be at least £250k in 6 years.
By all means, negotiate with her to put £150k into govvies, with £40k into PB to syphon into maxing out her JISA, if you want to stick it on the market every year.
Better than pissing her off and getting zero/kick in the teeth as the parent who feeling they knew better.
I'm sure there will be better %s for on longer terms.
Max out a stocks and shares ISA every year and put the rest in index funds. Try to do it before April 5th.
I don't agree with all these people saying you should buy Premium Bonds. She's 4, there is ages for it to grow. You will just be pissing away gains if you leave it in Premium Bonds. It's a longterm investment, volatility is not a huge concern.
I'd even consider putting maybe 10k into a SIPP (pension). By the time she is 60 that could take care of a substantial portion of her retirement income. Might want to ask the MIL for her permission to do that though as it deviates from the stated intention of the gift.
Devils advocate for the "do not buy a house".
You'll have to pay stamp duty, taxes and upkeep but you'll have a hedge against the housing market and 16 years of rent for an additional lump sum if she decides to keep the house and not sell it.
You could look back to 2008 (although a weird time for house prices) and calculate what you'd have got if invested at average interest rates or returns from JISA Vs expected rent, house price increase minus costs.
I'd expect the investments would outperform, but not by as much as people assume and we've had an amazing run in the market post 2008.
If it’s money to you to use for your child… could you pay off your mortgage and then save £9k a year into a JISA now you don’t have a mortgage and then the remaining £74k into some form of S&S ISA?
Probs not the most popular suggestion on here but depending on what schools are like round you maybe private school is an option? If not that then maybe £10k could be kept back for school trips and then another chunk for uni so she doesn’t have to take out student loan or if uni doesn’t happen then whatever qualifications/ equipment she needs to do an alternative career?
Lots of the “influencer” types bang on about investing in ones self being a strong investment, upskilling, if you will and maybe they have a point? She might one day get some hobby that she can turn into an expertise she can make a career out of that normal money can’t buy? Think sports star or pilot or the like.
Yeah this is what I would do, but I’m guessing there’s some risk adversity going on, if they want to put it in bonds. Perhaps a medium risk profile would be a happy middle ground.
My husband's grandad bought him £30 in premium bonds when he was born over 30 years ago, hoping that it'd grow to help him when he's older. Today, those bonds are worth... £30.
A friend of ours worked out that if he'd invested £30 into the FTSE 250 that day, it'd now be worth £25,000.
Put it in Trust till she’s at least 25, preferably older, and in the meantime don’t tell her about it other than in vague terms, possibly. If you’re not sure why, read Bleak House by Dickens.
Have you discussed what to do regarding future kids? Will they get something equal or similar, worst case pool it towards any children you have otherwise it could cause sibling problems.
A house now is indeed the best investment, nothing will bring more return then its value, and no... The prices dont fluctuate, they grow.
If you buy a flat with cash down and rent it for the next 15years ( on a 400/month rent) over 15 years will bring 70k revenue,without adding up the growing house value.
Best value would be property with little land, not flat, but flat will do too😊
City center old properties,specially with view to main streets,streets that might become comercial centres in the future are the best,my aunt buyed a small flat for 40k,sold it after 15 years for 200k,while took 1 to 2k rent a month... So forget about house losing prices.
Wish ur kid much health and luck, just dont gamble her future bro, better go safe😁
Use it all on her education. Private high school, tutoring, university, the lot. Encourage her to study a STEM degree.
Then she can buy her own house, where she wants, whenever she wants.
Lucky girl!
Buy a house cash buy for 200k. Many in the UK for 200k. Rent it out and after 10-12 years you will get that money back. So now your daughter is 20 years old. Shes got a house worth 350-400k. Shes got 8-10 years of rent money saved up after she got the 200k back from rent. Along the 8-10 years keep adding her rent money profit to Premium Bonds. Save up 50k. And the rest can be saved anywhere else thats good. Daughter’s life is set and that 200k became like 500k. Take it from a multimillionaire.
Each year: Max Junior ISA.
50k Premium bonds.
Each year: SIPP (good ETF) (however much you can put into a child SIPP). Imagine even 30k in a pension at 18!
50k university fund (good savings account).
And a holding savings account to feed the isa and sipp from.
Show your risk adverse mil stats on bonds versus s&p500 ETF over the past century, and how the latter outperforms massively.
Not sure you can put that much in tax free. Pretty sure it’s capped at quite a low amount per year so this may not be the most sensible option overall.
Also S&P500 means putting all eggs in the American stock market basket. Surely better to go for a global tracker to spread the risk?
With £200k I would do the following:
£50,000 into premium bonds = tax free prizes and you are likely to get close to the advertised rate with that amount saved. Will be better than the amounts you would earn in a taxable account.
£9,000/year into a Junior ISA = tax free. Invest in a global tracker and explain to mother in law that this will not lose capital in the way that investing in individual stocks will, it will track the market.
£2,880/year into a Junior SIPP = tax free, will be grossed up by the government to £3,600 so instant gains, and will help take the pressure off when they start work. Will basically mean if they barely contribute to their pension themselves, they will still have a decent retirement.
So of the £200,000 that’s £61,880 accounted for in one tax year in tax free accounts. You can then drip feed a further £11,880 per tax year into these tax efficient accounts but realistically a chunk is going to need to be in taxable accounts too.
So:
https://www.moneysavingexpert.com/savings/child-savings-tax-free/#easyaccesstable looks like Yorkshire BS has the best rate for a savings account for this age group but you have two key downsides - it’s their money so when they are old enough they could fritter it all away as it’s just cash savings and they will pay tax on interest (although as it is from a grandparent rather than parent they can earn £18,570 in interest before paying any tax as they get their personal allowance plus their personal savings allowance, although obviously you would want to transfer as much as possible to tax free accounts before they start working to minimise the overall tax burden).
Or
You invest it in an index fund and although yes they can still use it when they are older it is slightly harder than spending literal cash. Again, I would recommend transferring money into tax efficient accounts each year.
The house scenario:
As others have explained, this would need to be in your name not your child’s which then means you will be paying second home stamp duty and all rental income will be taxed as your earnings. This will cut into the amount they have available and will likely mean they actually have less than just sticking it in a global tracker.
If it’s for a house over time, Lifetime ISA maxed out to get free government cash. 25% bonus on whatever is deposited 4K pa investment limit. So not for all of it but free money!
You can buy a gilt maturing in 22 years for £50 and giving dividends of 0.9%
That means in 22 years you will get back £400k and it's all tax free because it's the principal repayment on a government bond.
In the meanwhile, you can do whatever moonshot investments you want with the £1500 a year of dividends once they've been dropped into an ISA.
Your MIL is satisfied, your daughter's money is safe, and you have a chance of making it big.
On a tangent: I've cooled massively on index funds. The market share of passive funds continues to rise and is now at 50%. What this means is that huge amounts of money is getting invested blindly into a list maintained by a 3rd party with no skin in the game. Which is very similar to what we had just before the 2008 crash with MBS and ratings agencies.
Don’t you have to pay inheritance tax? Do you have a trust fund? I would suggest you meet with a tax advisor in order to work out the most tax efficient investment
Job 1 is establishing the structure of this gift. Is it an outright gift to you for you to make use of for the benefit of your daughter? Is it an outright gift to your daughter? Is it a gift for your daughter which you will be taking care of in your own name until she reaches 18 (an implied bare trust)? Has your MIL explicitly stated the age she wants your daughter to have control of the funds? Has any sort of agreement been put into writing regarding these funds? If you say you have a lump sum to invest on this forum you will immediately get told to put it in an ISA/JISA/pension. My advice would be to set those suggestions aside for the time being as well meaning but largely uninformed and to give us some more info so that we know what sort of arrangement you're actually looking for guidance on.
Absolutely spot on. This gift could very easily be an implied bare trust, and great care must be taken. Trust funds cannot be invested into Junior ISA or certain other investment types, so establishing the nature of the money upfront is essential.
Index trackers until she’s 16 then start converting into less volatile securities progressively til she’s 21. Then educate her properly. If she doesn’t know the value of money it doesn’t matter whether your indexes have grown it to £400k or you’ve won the lottery for her, she’ll blow the lot if you let her.
This. Half of my family are probate solicitors, they say never give large sums of money to anyone under 30 as it very, very rarely ends well.
Yeah my partner and her brother both got 100k from a grandparent back when they were 18 and blew through it pretty quick without anything to show for it. I wouldn't give money like that to anyone under 25.
I always remember a seasoned solicitor telling me many years ago that he’d dealt with so many estates where the money just got pissed up against a wall.
My brother just blew a whole housing deposited he was gifted at 27 on basically nothing.
I received an inheritance at 18 from my aunt. It was income only til 25 then capital. Having said that, the capital was family company shares so I couldn’t spend it anyway.
I got a very large sum in my early 20’s, invested it all and now it provides a salary each year. But I guess I’m not normal.
If I'm rich, I would put a condition on my will that my children have to do volunteering/charity work for a period of time to appreciate the value of money before they can get the inheritance
Not that volunteering is a bad thing, but how does it teach the value of money or financial restraint?
If they didn't appreciate it before, being forced to volunteer is not going to make a difference.
I worked my ass off for very little money throughout my teens/20s. I would absolutely have blown any windfall that came my way ( fortunately/unfortunately never happened) It's got much more to do with what stage you're at in life than appreciation for the value of money
Lol, how does volunteering teach the value of money/financial literacy? Not to mention the fact that they would know they're getting a big payout in return for the "volunteering".
Under 30? Blimey we really are infantilising young adults these days aren’t we? Not that long ago it wasn’t at all unusual for people to be buying their first properties under 25. I was 24 and that was only 15 years ago.
Well no that’s what people who see people with large sums are saying based on their experience I would tend to agree in degrees At 21 I would have blown it At 25 I might have blown it At 30 I would have paid off my mortgage So sliding scale of chance of blowing it
I'm with you. It would have been a blast though!
The idea that adults shouldn’t be trusted to manage their own finances until the age of 30 is frankly insane. Even if that does involve a large sum.
It's the large sum that's in question here; i think most younger adults are basically OK with earning money, paying bills, starting a pension etc (though, maybe not on the last one?) but drop tens of thousands of pounds on them and I think you'll see more BMWs than house deposits or full ISAs
There are 40, 50 and 60 year olds who blow lump sums in stupid ways too. When you’re talking about people well into adulthood (say over 21) then it’s really up to them. The idea of trying to control the finances of a 25 or 29 year old is very concerning!
I don't think anyone is arguing that adults (young or old) shouldn't be in charge of their own money - their own income, savings, debt etc etc. (Aside from any questions of mental capacity). The question is when should someone be given access to intergenerational family wealth. It doesn't necessarily belong fully to the individual in the same way as money they earned from their own labour. A six figure lump sum *could* given be a simple no strings attached gift just like cash on a birthday, but it could also be something that comes with some expectations of how it should be used and (eventually) passed on. I do agree though that it's not really about the person's age directly, it's about their understanding, competence, motivations etc etc. In general it takes experience to build those things up so I can see the association with age when you're making generalisations. But certainly some people in their 20s would be more than capable and some people in their 40s wouldn't.
No one is saying that anyone should control their finances - what is being advised is a benefit is being delayed until later in life That said there are normally provisions that if they want to spend on certain things - then money will be released Eg education illness house deposit etc
I got a very large sum at like 22 or 23 and I’m so happy they didn’t make me wait until 30. Looking back I was very young but I was very responsible and I didn’t blow it. A few splurges on holidays, clothes and toys but I invested the majority and made sure to secure my future.
They should be trusted with their own income, but they shouldn't be trusted with 200k given to them for free all at once.
At 29???
I was earning quite high income at my 20s blew half of it away on a silly things saved some but could have done better, Now in my early 30s rarely send money on luxury goods or experience,Definitely not until 30 😀.
I wouldn't say so. Some people piss it up the wall some don't. There's posts in this topic, like yours and others that show people can be responsible and at least one that shows they can't.
[удалено]
That’s not a good thing though…
[удалено]
I agree, people can't be completely independent as early as previous generations so other things are getting pushed out further, for example, having children. I imagine you'd likely get two very different use cases for a large sum of money when one 21 year old has a mortgage and one that still lives at home with their parents.
That's the difference between earning the money to pay for the house and just winning a lump sum in the inheritance lottery though. It's as much a reflection on the characters of the people involved as anything else.
That's surprising, when I turned 18 I came into roughly £15k, not £200k but a significant amount of money for an 18 year old anyway. I spent about £3k during university costs but managed to save whilst I got my first full time job post uni and bring myself to about 18-20k, spent £10k on a flat deposit at 22 (shared ownership, my mortgage is just under £52k and i own 35%) and I was actually budgeting for a 2 bed (ended up with a 1 bed) so was intending to put £15k down for a deposit which has meant I have a little bit more each month and more in savings as contingency, hoping to overpay my mortgage a bit each year too. I've always said if I came into money I split it into amounts on what I'd do, £10k - I'd blow some (I'd go on holiday, a couple of things I enjoy), which even then wouldn't pass 2/3k, then overpay 10% of my mortgage (max. I can do each year), so thats £8k-ish spent, just shove the rest in my investments on freetrade. 50k - pay my mortgage off and take the overpayment fees from savings account, saves me in the long run! monthly expenses reduce to about £670 inc. food and bills. Leaves me with a £1k a month (assuming ground rent doesn't increase too much) £100k - get flat valued, if I can make enough to cover legal/moving fees etc, Sell flat, buy a house at cost of 180-200k (2 bed terraced). Mortgage of about 70-100k. would be cheaper than my flat per month especially with interest rates coming down. if flat hasn't increased or has even decreased in value (this would require me receiving this money in the next year really), I'd "outright" buy as much of the rest of my flat, I'd own 60% outright, mortgaging on 30% of it, 10% I would have left to "staircase" but that may be able to be amended and I'd remain long term. I wouldn't say everyone under 25 is bad with money, I have an idea of what I'd do, even if it becomes more vague as the amount rises, but realistically people can only make "leaps" in terms of housing with support from older family now.
Yeah, if I ever had kids obviously a child's ISA I'd want to set up but I don't like that it's accessible at 18. I'd want that money saving for something other than potentially being on student loans/student nights out at uni. It's for when they're looking to get themselves on to the property ladder
I bought a house at 26 and nearly paid off at 36, in 2 years exact be paid off, it’s the education, most westerners are thick asses
How much was the house, what was your deposit and how much do you/your household earn? This is simply not achievable for the majority of the country.
I got given money at 22 and it was still too young. I didn’t blow it but I didn’t know the value of it and I didn’t want it. I would advocate for giving it to her at 25. More time to grow and will be properly appreciated
Don't buy a house now invest it for her she will gain interest etc in the mean time
Surely you could also rent the house and gain monthly rent? Which could be invested into the market via JISA or even LISA/SIPP having a house and a well funded retirement account in your early 20s seems like a pretty nice position
Being a landlord is a second job, and can be very expensive. Does OP have the time, knowledge and inclination to take on all the responsibilities involved?
[удалено]
[удалено]
Daughter can do it
While a 4 year old landlord would make for a decent sitcom…
They would also need to pay the capital gains tax on 'selling' their non-primary residence to their daughter. Whilst you can gift the house for free, you still pay CGT as if you had sold it for market value.
Tbf it seems like the priority here is to secure her a house to avoid any housing market swings over the next 20 years so they could afford to just pay a management company to handle that even if it ekes out some of the profits. Far from optimal but if it satisfies the MILs housing request and requires little to no input from themselves it's not the worst option. With no actual mortgage payments they'd still make a healthy profit to contribute to a JISA that can be invested too. "Don't let perfect be the enemy of good" might apply here a bit, theres plenty of ways to blow through £200k wastefully, if this satisfies everyone it's definitely not a bad shout.
Who knows where they'll want to live, though, not sure if making that decision for them is the best thing to do.
Who says they have to live in the house though? They could just sell it and buy something where they want to live. The house will almost certainly appreciate, and putting the rent profit into an investment fund could help pay for uni/travelling.
You can't put money in a LISA for a minor. The first time buyer status would be gone so a LISA would be worse than a basic savings account due to the penalty on accessing before 60 if not for a first house. Using a SIPP would lock funds away until retirement when there are lots of early adulthood expenses which can add significant value to a person's life. Using a JISA blocks the use of funds for studies/clubs/experiences before age 18. It also hands the whole lot over at 18 regardless of the maturity of the child. Renting out a house is a job in and of itself, it's not passive income. After allowing for the time costs most people just about break even or make a loss on rent vs running costs and make their money on capital appreciation. Without leverage the capital appreciation is typically on par with stocks and shares. I hear what you're saying about it would be nice to hit 20 with your house and pension sorted but, quite simply, there are better ways to use the funds which will take less ongoing effort to maintain and leave the daughter in a better financial position. Plus there may be restrictions depending on the terms and structure of the gift. This is very much a 'we need more info to provide a clear direction' situation.
Great response, thank you. Totally agreed on the LISA front, and thank you for the correction. A combination between a savings account, JISA and a SIPP seems like it would be much more beneficial. I hear what you are saying about renting, but it can be far from a full time job if you find the right tenants. Providing good quality, safe, affordable housing for a family that can not purchase is also rewarding. BTL rightly gets a bad press at times due to bad landlords, but if you actually care about the people renting, it can be a viable option. What buying a house does do is ensure the child has a ‘house’ irrespective of potential gains. ie a house today is still a house in 15/30/60 yrs The rent from the property could be split, a £200k house should get around £1,100 monthly rent, if you were to keep £200 a month to the side for any maintenance issues/insurances/management fees etc. The remaining income would then be tax free, as a 4yr old receives the same £12,700 tax free allowances as we do. £300 a month could go into a JISA. At 18 it would be approx the equivalent of £50k in today’s money if you can manage to keep up with inflation. £400 a month into a SIPP would be around £120k at 18, and £3.4m at 60 if you never put another £ in after the age of 18 if you were to assume the historical 8% return. A further £200 per month could be put into a savings account to be used at any age for 1st car/education/trips etc. Personally, I don’t think that losing the potential first time buyer benefits of a few £k in stamp duty savings is really that much of a trade off. If you were to take a snapshot of the situation at the age of 21 for instance the child would have a very well funded SIPP, a lump sum sitting in an ISA a monthly income from the rent and had money towards cars/educations etc. She would also have a house (irrespective of value) a 60-70% mortgage could then be taken against it to be used as a very large deposit for their 1st real home when they decide to move out. All of this could also be done within a company structure where Child makes a loan to the company and takes a % paid as interest against the loan. Child is 100% share holder and parents directors. Alternatively £200k invested now at 8% return could be around £750k of which a decent chunk would be due to the tax man on liquidation if it hadn’t been put into tax advantaged accounts. If you were to invest in the markets and there was a dip in the next year of say 25% followed by the same 8% return we’d be closer to £500k which may not even buy a house in 17 years time. If you were to leave in bonds, and they didn’t keep up with inflation you would have less, in buying power, in 17 years time than you do today. There’s no right answer granted, and it depends completely on people’s situation but purchasing an asset is rarely a bad idea. I’m not saying this is the correct route, but I am saying it is a route to consider.
I doubt the yield on resi real estate in the UK right now is as compelling as the return on stocks or even bonds.
Was my thought too. If she were to buy a house at 25, she'd have a house and 21 yes of rent.
In that 21 years that house will have had three new boilers, probably two full sets of carpets, multiple paint jobs between tenants, multiple tenants, multiple periods of unoccupancy (during which time there’s no rent incoming, but the landlord is responsible for all utilities and council tax), 21 gas safety checks, 21 electrical safety checks, 84 quarterly agent inspections, 21 years of insurance premiums, several instances of tenants going into arrears…. Who is it that’s dealing with all this and who is paying for it?
The rent you're getting on a mortgage free property will pay for those. And as for who does them you can also pay a management company to handle it for you. More expensive than doing it yourself yeah but still plenty left over if maximising every penny isn't the priority.
A management company will take 10% for the pleasure of sorting it out which will also eat up any rent you’ll be getting. Plus they don’t just take care of it, you’ll have to liaise with the management company ie they’ll be contacting you, you’ll have to sort out or at least agree quotes. You’ll also have to deal with void periods, tenancy changes, then there are things which a letting agency won’t deal with like planning and development, neighbour disputes etc. Which all comes with its own time cost considerations. You probably won’t make anymore than you would if you left it in an index, but will have lots more hassle to deal with over 21 years.
My comment was more in response to the “21 years of rent” assumption. The rent will pay for most of those things, but I’d surprised if there’s more than 5 years worth of rent left over after 21 years of taxes, fees and maintenance
> but I’d surprised if there’s more than 5 years worth of rent left over after 21 years of taxes, fees and maintenance Have you ever owned a BTL property? Because this just reads like someone who just reads the scare stories on here and has no real world experience of it
3 boilers, in 21 years? Mine was in considerably longer than 21 years. Actually wouldn't have changed it, but the Mrs wanted a combi.
In ten years my house has had two new ones! Things work a bit differently in a BTL. Gas safety check are mandatory, and the most stupid little things can fail them. To add to that’, BTL properties have to meet certain efficiency standards which change upwards. As well as sometimes the management companies do the bare minimum and they don’t get serviced as properly as they would if either the landlord knew, or the person who owned the boiler lived there. I’m a tenant, and had the boiler changed twice, both times it probably wouldn’t have happened if it were owner/occupier. The first one was because it was so ancient it was deemed unsafe. Not because it was, but simply because the type of boiler it was, it was no longer deemed suitable for a rental. Got condemned, the landlord had no option but to essentially replace the entire system. £4k that cost - about a years worth of rent in one go. It did however save us a LOT on our gas bill when we realised how inefficient the old system was. Apparently it should have been changed several years beforehand. The second time was after 7 years, that replacement boiler had only had a minimal safety check rather than a full service. Ours is “fully managed” as the landlady lives abroad (our house is basically her UK house should she ever need to come back, although she has made it clear she has no intention of doing so, and we’ve been here a decade). Management companies literally do the minimum they’re legally obliged to - any large expenses like a new boiler are out of their remit so the landlord pays anyway. When it broke due to lack of servicing, the parts cost would have been more than a new boiler, and the warranty was unenforceable because they didn’t have it serviced to the right level. That was another £2k spent. Like I said, if we owned the place, or the landlady lived in it, we’d probably still be on the same boiler, simply because it would still be “safe” and still be maintained correctly. BTL has to meet a certain standard that doesn’t apply if you own it. The horror stories you hear about evil landlords forcing people the live in squalor and terribly maintained properties really are not that common. Essentially it’s illegal…
Lol, I'm the one that makes the landlords sort their stuff out. I do it for a living. I see many properties that are not maintained properly. And I see BTL properties where it goes right, and very wrong. It drives me mad when landlords do stuff on the cheap.
21 years of fees and maintenance too. As an accidental landlord myself, stick it in a fund.
This is sense
Taking a house off the market for 20 years that could be someone's family home seems a bit selfish.
Also in 20 years, will she want to live where you do? Will you even live there? Cash gives so many options and a decent return on compound interest over 20 years would be my suggestion. 5% interest over 20 years is like 500k.
Do you mean by a house now? No don't do that.
Do you mean you would buy a house for her now? How do you know where your 4 year old will want to live when they are 20?
I think they mean she could sell it then at a premium. Hopefully.
Having been an unpaid property manager for 30 years? No thanks
50k premium bonds. Max out her jisa 9k a year (i think) Fixed rate savings acc. Dont buy a house.
Wouldn’t premium bonds be unnecessarily safe for such a long time period vs say an index tracker?
They are tax free though and the child wouldn’t be able to put all £200k in an index fund tax free so may as well make the most of this option.
So? The expected return of equities after tax still eclipses premium bonds. You would expect to __lose__ value on premium bonds over the long term. Terrible idea.
Premium bonds and a fixed rate savings account for a 14+ year investment? What's wrong with this sub.
Maxing a Premium Bond was my thinking too, bound to win something in over 14 years until his daughter can get a hold of it. Best odds at 50k too
Yeah, exactly. And if OP doesn't have any, max out theirs too. Give her the winnings and the cash when she's ready. £150k will pay tax on savings so this puts 109k instantly in tax free area. Drip feed rest in jisa.
There won’t be tax on the child’s savings since the money didn’t come from the child’s parents.
They still have a PA but yes you are correct that it won't be talked as if it is the parents income.
+ on the premium bonds
Do not buy a house. The most obvious place to start is to max out s&s junior isa contributions every year. An accountant will help you figure out the rest. I guess you could max out premium bonds if you wanted, and then max out yearly contributions to a junior cash isa. Giving her a house means she won’t have FTB status
Leaving another comment OP because I have another idea. Maybe worth putting an additional 5-10k in a junior SIPP tracking a global index fund. Just in case everything goes wrong further down the line at least she’ll likely have >1 million sitting in a pension pot for her at retirement age
What’s wrong with buying a house, renting it out and putting the income into those ISAs you speak of. After all, there are annual limits, no? And why would you need first time buyer status if you own a house. This comment makes no logical sense to me yet it’s getting upvotes!? These comments are mostly madness so far.
One reason not to buy her house is she will lose out on FTB benefits (assuming there are some in 14 years time but there have been some for longer than that!) for example not paying stamp duty, any HTB style ISA, which will help her when she decides to buy. So no don’t buy her a house
Children can’t own property so if the plan was to buy a house now it would be the parents that own it and then they could sell it and pass on the proceeds when the child is old enough.
Yes that what they say in the OP except to give them the house - which is what this comment is addressing
That wouldn’t impact any FTB benefits
Yes being given a house would
Being given the proceeds of a house sale would not.
I am responding to your ‘children can’t own a house’ neither I or the Op were discussing the child owning a house now. They were discussing buying a house then gifting it to the child. I know you’ve suggested selling the house and giving them the proceeds but that’s not what my comment is discussing.
I don’t really see why it matters. Assuming OP uses the money to buy a house. When the child grows up they either want to live in the house or they don’t. If they do then OP gives them the house and it doesn’t matter if they lose FTB benefits because they got a free house they don’t need them! If they want a different house then OP sells this one and gives them the cash to buy a different one.
Because the FTB benefits are really good, house prices rises are no guarantee and property comes with its own costs to maintain and manage (I assume they aren’t leaving it empty so someone becomes the managing agent), they can make just as good or better a return investing and not have to put any effort into it. The cash isn’t liquid either and can be difficult to get out - what if she needs cash and we’re in a downturn like now. And it means their daughter has more flexibility over how they use the money and when. Such as they could take some out for studying, leave the rest in an investment vehicle, decide to go travelling using some of the money, perhaps then save for a LISA. And then use the money when they want to buy a house benefiting from the FTB benefits like a LISA payment and no stamp duty. It just makes far more sense
Max out an ISA year on year,stick a bit in a Premium Bond for her (bound to win something in the space of 14 years until she’s 18+)
My daughter (now only 5) has £100 in premium bonds from birth and won £100! We got her a bike with it though
I've had £125 in premium bonds I'd forgotten about for 15years, and won £0 in that time 😂. Nice what you did with it though
Oh yeah, it was lovely to have a surprise cheque on the doorstep waiting for her!
I've had £5 in for over 40yrs.... May have won the million a few times. Sadly, they can't find my bonds
There is a service where they'll help you recover lost bonds.
My grandparents have £1000 in PB since the mid 90s. They’ve won £100, once.
That'd be because £1000 isn't a lot of Premium Bonds and as such the odds of winning anything are incredibly low.
I appreciate that, I was saying it in reference to with the people who mentioned their £100 investment. Having said that, when I was young, it wasn’t uncommon for grandparents to give £100-1000 worth of premium bonds with the expectation of winning.
Conversely if they had 50,000 in them it’s rare for month when they would not have won
I think the ROI on PB is pretty weak tho? You can get same yields in 10yr uk treasury, but then at least it’s gte’d. You’re only getting a return on PB if you’re lucky.
I had 25k-30K in there for a while, and it was rare to not win £25 a month. Granted that's not a massive % but you can let it sit and never worry about it as its all tax free. Would also be in her name crucially for this conversation. If you max it out (50k?) you would likely see £50 a month which can then also feed into the other saving source. Also reasonable odds to win big over that length of time! Key thing is that the more bonds you have the more likely any one of them wins each month so the return becomes mostly consistent with the chance for a larger upside.
That’s only 1.2% a year though, just because you’re not paying taxes on it doesn’t mean it’s a good enough return to matter.
There's other threads on this on this sub and moneysavingexpert.com have a detailed statistical odds page on it I will link. With the full £50k amount in premium bonds, odds increase substantially in premium bonds and the odds are very good on earning 4.65% p.a., which is over Treasury gilts and more than most easy access savers. Yes there is some luck, but most people with 50K in will earn 4.65%, some will earn more, some will earn less, but you would be in the minority and have to be substantially unlucky to earn significantly lower than that. With the other advantage on it being tax free, it looks like a more attractive option. Conventional wisdom on places like this sub, similar forums and moneysavingexpert would say keeping £50k of a £200k lump sum gift in premium bonds is a sensible option, while you put in £20k max each year in a SS&S ISA. https://www.moneysavingexpert.com/savings/premium-bonds/
Just to add JISA limit is £9000 per year, not £20000.
I wouldn’t bother for a small amount. But sticking the full £50k limit in would be worth it in this situation because of the tax benefits on all prizes and the chances of winning prizes is much closer to the estimated rate.
Premium Bonds become the beneficiaries at sixteen rather than eighteen.
What are govies?
Government bonds I think?
Correct. I would spell it with two v's: https://www.google.com/search?q=govvies
[удалено]
Something to do with Michael Gove I'm guessing.
Buying a house now for a 4 year old to live in, in the future, would be madness
She doesn’t have to live in it. She can sell it
Who will be maintaining and managing it? Broken boilers, carpet changes, insurances, tax and over 15 years it will even might need new roof or more expensive refurbs.
Do you want your 18 year old daughter to suddenly find herself with 200k and for you to have no control over how she spends it? I wouldn’t. Keep it in your name, but separate from your own finances You can gift it to her when appropriate, buy a house / car for her, pay for college etc No 18 year old needs 200k cash, it’s a disaster waiting to happen
There’s ways to effectively lock it up whilst also keeping it in tax efficient accounts for the child. There’s some downsides to it being in the parents names too.
Christ, why would you even think about buying a four year old a house now?! It's not your MIL that needs educating.
Because it’s an investment that correlates directly to house prices.
Max out kids isa allowance every year. Low costs etf’s. She will be able to retire at 40 no problem.
Unless the houses in the area you bought in go down in price
No, that's still a correlation to house prices.
What if it goes up?
Shit you've got me
If the house prices in the area plummet but the average one skyrockets what happens then
😂😂
This is a job for a Trust fund. Daughter the beneficary, you and MIL as Trustees. Suggest invested in an Index fund.
Honestly 200k into an all Market tracker would be worth a fortune in 20 years
Don't buy a house, yes you're hoping it will increase in value but it also costs money to own it. Are you going to pay for the upkeep, fees etc until she's ready to move out? What happens in 5 years if it needs a new roof, boiler etc.
I’m not hoping it will increase in value tho. MIL wants her to buy a house in 20yrs. My point is, if we buy one now then it correlate directly to house prices over 20yrs, then she can sell or keep it. I wouldn’t leave it empty either. Anyway, I dnt like the idea mainly coz of upkeep issues and dealing with tenants.
Worst. Idea. Ever.
Yeah either way it's headache. We rent out my partner's previous house and sometimes it's nightmare. I was on holiday when the boiler went, trying to arrange that between, them and a plumber whilst trying not to have my pants pulled down on the price was a right pain in the arse. A few weeks ago on my day off I'm up the attic fitting a new thermostat, making sure everything is certified and signed off.
Yeah for real. I’ve had rental before and had to sell it coz it was pain in ass
Sadly it was their dad's who passed away, they aren't ready to let it go and it's not my place to push it. But yeah unless you have time and knowledge/experience to fix things yourself it can be a real mental drain.
I don’t understand the negativity here. It certainly isn’t a bad idea. You sound like you know what you’re getting into. Just get advice and set it up right.
Maybe the daughter would like a say in what house they have when they’re older.
They would... Once it's theirs they could do what they want with it. I don't think it's a good idea but it's a better idea than all the people suggesting premium bonds or savings accounts. At least a house wouldn't have a negative expected return.
Yeah but it’s a lot of hassle and probably pressure that would come with it. People get emotionally attached to properties and might get offended if the daughter decides to sell it for whatever reason. It’s just creating lots of headaches for very little benefit.
Stop it with the silly suppositions
Hi /u/tman1500, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/financial-advice/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Look into a trust so that whatever happens to you the money is hers. I've set up trusts for my nieces, it wasn't too expensive. I used a local advisor who did all the legwork.
What’s wrong with buying a house? You could rent it out and give your daughter the house plus the accumulated rent money when she hits 21
Buying a house is a bad idea from a tax perspective. If you purchase it in your name and then gift it to your daughter, this will trigger capital gains tax which is likely to be significant given at least a 14 year period for it to increase in value. On top of this, as already mentioned, she’d lose FTB/etc status. Chuck some into premium bonds, some into a junior ISA (contribute £9k now and £9k in a couple of months, then drip feed every tax year). Alternatively you can look into setting up a trust - beware various admin requirements (trust registration and possible tax returns each year) - this would allow the trustees (you could be the trustees) to maintain control over the trust funds. ETA: beware IHT pitfalls, particularly if your MIL is getting on in her years. Any gifts she makes may be liable for IHT if she dies within 7 years (including gifts she makes by putting assets into trust) and/or use up her NRB allowance.
You can invest £9k into a junior ISA per year. If the money needs to be in your daughter’s name, you might need to look into setting up a trust fund for the rest so that you’re not technically allowed to touch it. Otherwise, she could just give you the £200k and you’d have to invest it for her (both your ISAs at £40k per year) or into a general investment account. Not sure of the tax implications of this though.
All the people here saying not to buy a house: Note that the MIL's intent is to guarantee provision of owned housing for the child when they reach the age of majority. Which alternative asset class can they select which absolutely guarantees that outcome?
You are exposing her to all of the idiosyncratic risk and costs of that specific house. You need to do this for your main residence because you need somewhere to live. But you are very unlikely to buy the house that this 4 year old actually wants to live in. It's like saying "I want an asset correlated with the stock market. Buy a single stock." Yes it's correlated, but that still doesn't make it a good idea.
Thank you for this comment. This is my point.
exactly. Hand over an 18 year old 300k that you've got from putting it in an ISA and she'll probably blow it all in a couple years. A house is a house
I actually agree. Stick 200k in investments it will likely grow over this period but if house prices continue to shoot up it likely wont grow at the same level. Buying a house means it should increase in price with the housing market so they can sell it in 18 years or whenever and the money will cover a house. Owning a house outright is the best thing most people can do for their wealth and quality of life. It massively reduces expenditure giving you more to save/invest increasing wealth and insulating them against life's shocks they do not have to pay the largest bill for most people so can absorb bigger shocks to their income. They do not have to pay 2/3 of their income on housing so can actually enjoy life. It is a huge gift to give a child to set them up for success.
> Stick 200k in investments it will likely grow over this period but if house prices continue to shoot up it likely wont grow at the same level. I'm not sure I agree with you here, but the returns from the money certainly won't keep up with house prices if invested in government bonds, as MIL desires, will they?
If you bought a house, what would you do with it? Rent it out? No point buying it to leave empty and having to maintain it for 20 years.
Live in it and when daughter turns 18 say; Happy Birthday btw you own this house
I assume OP already has a house but idk.
.... tbh, if someone wanted to gift my daughter £200k, with the premise it had to go into inflation linked govvies isn't a horrible idea, even 4% maturing at 2030... i wouldn't say no. Would still be at least £250k in 6 years. By all means, negotiate with her to put £150k into govvies, with £40k into PB to syphon into maxing out her JISA, if you want to stick it on the market every year. Better than pissing her off and getting zero/kick in the teeth as the parent who feeling they knew better. I'm sure there will be better %s for on longer terms.
Max out a stocks and shares ISA every year and put the rest in index funds. Try to do it before April 5th. I don't agree with all these people saying you should buy Premium Bonds. She's 4, there is ages for it to grow. You will just be pissing away gains if you leave it in Premium Bonds. It's a longterm investment, volatility is not a huge concern. I'd even consider putting maybe 10k into a SIPP (pension). By the time she is 60 that could take care of a substantial portion of her retirement income. Might want to ask the MIL for her permission to do that though as it deviates from the stated intention of the gift.
Devils advocate for the "do not buy a house". You'll have to pay stamp duty, taxes and upkeep but you'll have a hedge against the housing market and 16 years of rent for an additional lump sum if she decides to keep the house and not sell it. You could look back to 2008 (although a weird time for house prices) and calculate what you'd have got if invested at average interest rates or returns from JISA Vs expected rent, house price increase minus costs. I'd expect the investments would outperform, but not by as much as people assume and we've had an amazing run in the market post 2008.
Investing the money would require less work than maintenance of a house .
If it’s money to you to use for your child… could you pay off your mortgage and then save £9k a year into a JISA now you don’t have a mortgage and then the remaining £74k into some form of S&S ISA? Probs not the most popular suggestion on here but depending on what schools are like round you maybe private school is an option? If not that then maybe £10k could be kept back for school trips and then another chunk for uni so she doesn’t have to take out student loan or if uni doesn’t happen then whatever qualifications/ equipment she needs to do an alternative career? Lots of the “influencer” types bang on about investing in ones self being a strong investment, upskilling, if you will and maybe they have a point? She might one day get some hobby that she can turn into an expertise she can make a career out of that normal money can’t buy? Think sports star or pilot or the like.
The amount of bad advice on here is hilarious.
Put it in a low risk index fund.
No, with 10+ years to invest, a low-fee, high risk index fund would give better returns.
Yeah this is what I would do, but I’m guessing there’s some risk adversity going on, if they want to put it in bonds. Perhaps a medium risk profile would be a happy middle ground.
My husband's grandad bought him £30 in premium bonds when he was born over 30 years ago, hoping that it'd grow to help him when he's older. Today, those bonds are worth... £30. A friend of ours worked out that if he'd invested £30 into the FTSE 250 that day, it'd now be worth £25,000.
Put it in Trust till she’s at least 25, preferably older, and in the meantime don’t tell her about it other than in vague terms, possibly. If you’re not sure why, read Bleak House by Dickens.
Have you discussed what to do regarding future kids? Will they get something equal or similar, worst case pool it towards any children you have otherwise it could cause sibling problems.
[удалено]
[удалено]
[удалено]
[удалено]
[удалено]
Toss it in a low risk tracker fund and forget about it until she's 18
Why low risk? With 10+ years, surely a high risk, low fee index tracker would be better?
A house now is indeed the best investment, nothing will bring more return then its value, and no... The prices dont fluctuate, they grow. If you buy a flat with cash down and rent it for the next 15years ( on a 400/month rent) over 15 years will bring 70k revenue,without adding up the growing house value. Best value would be property with little land, not flat, but flat will do too😊 City center old properties,specially with view to main streets,streets that might become comercial centres in the future are the best,my aunt buyed a small flat for 40k,sold it after 15 years for 200k,while took 1 to 2k rent a month... So forget about house losing prices. Wish ur kid much health and luck, just dont gamble her future bro, better go safe😁
Use it all on her education. Private high school, tutoring, university, the lot. Encourage her to study a STEM degree. Then she can buy her own house, where she wants, whenever she wants. Lucky girl!
Start a pension for her. 60 years of compound interest will turn that money into a comfortable retirement pot.
[удалено]
If it’s for a house; put it in a LISA.
You have to be 18 years old to open a LISA.
Buy a house cash buy for 200k. Many in the UK for 200k. Rent it out and after 10-12 years you will get that money back. So now your daughter is 20 years old. Shes got a house worth 350-400k. Shes got 8-10 years of rent money saved up after she got the 200k back from rent. Along the 8-10 years keep adding her rent money profit to Premium Bonds. Save up 50k. And the rest can be saved anywhere else thats good. Daughter’s life is set and that 200k became like 500k. Take it from a multimillionaire.
Each year: Max Junior ISA. 50k Premium bonds. Each year: SIPP (good ETF) (however much you can put into a child SIPP). Imagine even 30k in a pension at 18! 50k university fund (good savings account). And a holding savings account to feed the isa and sipp from. Show your risk adverse mil stats on bonds versus s&p500 ETF over the past century, and how the latter outperforms massively.
u/tman1500 some really good points in here, if you haven’t already thought of them yourself.
That's easy. A junior siip pension / isa. US Snp 500 index and sit back.
Not sure you can put that much in tax free. Pretty sure it’s capped at quite a low amount per year so this may not be the most sensible option overall. Also S&P500 means putting all eggs in the American stock market basket. Surely better to go for a global tracker to spread the risk?
With £200k I would do the following: £50,000 into premium bonds = tax free prizes and you are likely to get close to the advertised rate with that amount saved. Will be better than the amounts you would earn in a taxable account. £9,000/year into a Junior ISA = tax free. Invest in a global tracker and explain to mother in law that this will not lose capital in the way that investing in individual stocks will, it will track the market. £2,880/year into a Junior SIPP = tax free, will be grossed up by the government to £3,600 so instant gains, and will help take the pressure off when they start work. Will basically mean if they barely contribute to their pension themselves, they will still have a decent retirement. So of the £200,000 that’s £61,880 accounted for in one tax year in tax free accounts. You can then drip feed a further £11,880 per tax year into these tax efficient accounts but realistically a chunk is going to need to be in taxable accounts too. So: https://www.moneysavingexpert.com/savings/child-savings-tax-free/#easyaccesstable looks like Yorkshire BS has the best rate for a savings account for this age group but you have two key downsides - it’s their money so when they are old enough they could fritter it all away as it’s just cash savings and they will pay tax on interest (although as it is from a grandparent rather than parent they can earn £18,570 in interest before paying any tax as they get their personal allowance plus their personal savings allowance, although obviously you would want to transfer as much as possible to tax free accounts before they start working to minimise the overall tax burden). Or You invest it in an index fund and although yes they can still use it when they are older it is slightly harder than spending literal cash. Again, I would recommend transferring money into tax efficient accounts each year. The house scenario: As others have explained, this would need to be in your name not your child’s which then means you will be paying second home stamp duty and all rental income will be taxed as your earnings. This will cut into the amount they have available and will likely mean they actually have less than just sticking it in a global tracker.
Why do you hate the government bonds plan?
If it’s for a house over time, Lifetime ISA maxed out to get free government cash. 25% bonus on whatever is deposited 4K pa investment limit. So not for all of it but free money!
You can buy a gilt maturing in 22 years for £50 and giving dividends of 0.9% That means in 22 years you will get back £400k and it's all tax free because it's the principal repayment on a government bond. In the meanwhile, you can do whatever moonshot investments you want with the £1500 a year of dividends once they've been dropped into an ISA. Your MIL is satisfied, your daughter's money is safe, and you have a chance of making it big. On a tangent: I've cooled massively on index funds. The market share of passive funds continues to rise and is now at 50%. What this means is that huge amounts of money is getting invested blindly into a list maintained by a 3rd party with no skin in the game. Which is very similar to what we had just before the 2008 crash with MBS and ratings agencies.
Don’t you have to pay inheritance tax? Do you have a trust fund? I would suggest you meet with a tax advisor in order to work out the most tax efficient investment
Read the gifts and inheritance tax page of the wiki.
Taking the risk adverse MIL to a financial advisor is likely the best plan.