I don't want to go into too many personal details but would appreciate a few constructive comments on ways forward. Unfortunately my dad died recently and as one of the executors named in his will I'm in the process of being granted probate. The money left to me will total 90K but I'm currently a long term invalidity benefit receiver and in receipt of the mobility higher rate as well. I worked for several years in civil engineering but haven't worked since retiring in 1998 on ill health grounds, I receive a pension from this employment and will do so for life. I also receive the maximum allowable housing benefit allowance towards my rent which covers approximately half it's cost. I'm thinking of simply investing the money in a high interest savings account and using the interest earned from it to cover the loss of my housing benefit resulting from the amount I will eventually receive. I can't really afford to take any financial risks and wonder if this is the best/only safe option.
You dont give your age but I suspect that you should be able to expect to live for many, many years yet. If that is so, then cash may appear to be safe but it is likely to depreciate in real terms. Just look back 20 years and see what prices etc., were then and then project forward. If you are withdrawing the interest then £90k wont appear all that much in
20 years time. On the other hand I can understand that you dont want to lose your money.
There are a number of investment types that should give you a rising income over the years with some degree of capital appreciation as well, but there is a degree of risk. The risk is not so much that all your money may be lost, it is more likely that the £90k will vary in value. Your options include Fixed Interest securities and equity based Unit Trust investing in high yielding shares, both of which can be wrapped in an ISA or a Life Bond.
I am sure others will post with some good suggestions but one particular form of investment is a 'Distribution' fund. These tend to be classed as 'cautious to balanced' risk and they comprise of a spread of different income producing assets. Typically the fund will have some Fixed Interest and some high yielding equities and may also have some commercial property. The interest, dividends and rent it receives is collected and 'distributed' to you, either monthly, quarterly half yearly or annually. This distribution takes place without encashing any of the underlying investment units, the value of which should also generally increase over time, but will vary in value. The amount distributed should increase over time. Some Distribution funds are unit trusts (which can be put in an ISA) but the majority are run by Life Companies and are one of the very few occasions I would recommend a Life Company to manage a fund. The Life companies wrap the Distribution Fund in a 'Investment Bond' which gives it a different tax treatment, This is one of the few times I would suggest an onshore life bond. The tax treatment is such that you can take up to 5% per annum withdrawal until you have used up all the initial investment without HMR&C getting involved. If the amount you withdraw exceeds the 5% per annum cumulative then if you are, or are close to being, a higher rate tax payer then you might have some more tax to pay, but I reckon you are probably not in that band. The withdrawal is not 'income' for Income Tax purposes and as such does not effect any means tested benefits but the capital amount probably will.
There are a few providers such as AXA Sun Life, Friends Provident, Clerical Medical etc., The AXA Sun LIfe Distribution fund is probably the market leader and you can expect to get a starting 'income' of about
5% of the original investment per annum generally rising over time plus a reasonable expectation of capital growth as well. Charges can be a bit high but none the less the return and risk could be just what you are looking for. The charges can be reduced by going to see a fee charging IFA..
Quite, the RPI was rebased at 100 in 1987, it exceeded 200 this year, and some people question the validity of these official figures, all this in a "low inflationary" era.
As others have pointed out, over the long term inflation will eat into your investment. To put in some numbers:
90k invested at 5.45% would give you £4905 per year. If you wanted to keep the 90k balance the same in real terms it needs to increase with the rate of inflation. Inflation is currently around 2.5%, so you need to leave 2.5/100*90000 = 2250 of that interest in the account. Then you have to pay tax on the income as well (I assume you pay tax?).
How much rent are you paying, and is buying a flat out of the question?
Are you sure about that? There are some very odd rules about what counts as income for the purposes of benefits - I think just about any form of money coming in could be classed as income. All kinds of non taxable income counts, even taking out a loan can be classed as "income"!!
That is what I have been advised, on the basis that it is a withdrawal of capital, not income. A Life Investment Bond is a 'non income producing asset'.
The only benefit I'm receiving that is means tested against savings, at least the last time I checked, is housing benefit which I will lose entirely. Any income over and above my personal tax threshold will simply be taxed as such, that is as I understand it but may well be wrong.
If I had 90k to invest, I would look at buying a flat rather than investing as cash and using the income to pay rent. There are several reasons for this:
1) You will pay income tax on the interest you earn, so buying the property could be more tax efficient in the long run.
2) You are better protected against inflation. Yes house prices could drop, but does that matter? If you bought a flat for 90k and then the value drops to 45k you would still have the same quality of life.
3) As a buyer with cash in the bank you would be in a very strong position - the person selling the house doesn't have to worry about your mortgage falling through or your buyer pulling out.
Of course there are some downsides:
1) buying a property is a lot more hassle than just putting money in the bank.
2) You will have to pay for any repairs required. I would imagine that DIY is not going to be easy for you, so even quite simple repairs could be expensive. On the other hand there may be charities or grants to help people like you. I don't know.
3) probably lots of other things.
Have a look at the website below and what you can get for 90k
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I'm no expert and, of course, I don't know the details of your circumstances and buying a property may be totally unsuitable for you.
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