What is the best way to invest £10,000.....?

Question

The money is for my son, he is 6 at the moment and I don't want him to have it until he is 30............

If I put the money into property, would it only be any money left over after the mortgage has been paid that would liable for tax??
If so I could make sure no money would be left and spend it on furnishings etc.......Would it only be capital gains tax when it was sold that would I would be liable for???

I think its a good idea and would set up a letting company to manage it. I want avoid a 40% tax if I could

30 is a good age he is settled hopefully by then.........I was still messing around til 28

Answer 1

Property can be a great investment, but it has a couple of big drawbacks in the circumstances you describe.

First of all, the return on rental property at the moment usually isn't enough to completely cover a typical mortgage once you look at agents' fees, repairs, and time empty - you should allow 25% of the rent you hope to get for those 3 when you budget. That means you have to either put in a bigger lump sum (which I assume you don't have) or top it up each month (which you may not be able to afford).

Also, as you quite rightly point out, some of your lump sum will be eaten up in charges - solicitors' fees and stamp duty are both incurred when you buy and might be £1000 each - that's 20% of your lump used up. And when you sell a property, you (or your son) will get the whole capital gain at once, and are quite likely to get taxed on it. He might be able to avoid some of that by living in the property for a while, but I think they're pretty clever and you won't get away with 20 years' gain by living there for 6 months!

Interest bearing investments - bank accounts, bonds, etc - will generally give about 2% above inflation: that means they'll only give him a lump worth about £16k (in today's money) in 24 years. But they are safe, and if you're not a confident investor they might be the solution for you.

Equity-based investments have traditionally returned about inflation plus 6% in the long run. Allow 1% for overheads and that still means if you buy shares or unit trusts you could hope to have a lump sum worth £30k or so (in today's money) when your son turns 30. The other good thing is he can avoid any capital gains tax by withdrawing it over a few years, and in any case shares held for a long time are now only subject to tax at about 10%. But of course equity investments are riskier - you should spread your investment over at least 2 or 3 funds, or 6 or 7 companies if you buy individual shares, to avoid the worst of the downside.

Good luck, you're doing a very sensible thing here which I'm sure your son will really appreciate - even though I'm sure he'll be asking for the money as a house deposit by the time he's 25!

Answer 2

The most sensible option would be to invest it in a long term, fixed interest bond.

The future is guaranteed with this sort of investment, any tax liabilities will be taken care of, you may even be able to get the tax back until he turns 16 if it is invested in his name.

Premium bonds may pay more, if you win, but of that there is no guarantee, although the capital is safe.

Property has the chance of giving very high returns, but you are not going to get much for £10,000 so you would no doubt need to mortgage some of the property and hope to rent it out, high risk.

You could invest in stocks and shares, very very high risk

Answer 3

Waiting until he is 30 is very smart. We might be considered adults at 18, but most of us aren't sensible until closer to 30.

Start a trust fund. Invest in income stocks. Re-invest the dividends.

Buying a rental property would have been the best idea a few years ago, but who can cash-flow one now for only 10,000 down???

Answer 4

A Maxi ISA with £7000 and the other £3000 in bonds. If you put it in his name I'm not sure you can keep it off him until he's 30. Get some good advice from at least 3 financial advisers in separate firms. Hope this helps !

Answer 5

The best you'll get is by putting 3k into an ISA paying 6.5% and the same rate in a web saver. Several 'high street' banks to choose from. You'd earn approx £16 per month in the ISA and approx £31 per month (nett) in a web saver on 7k.

Answer 6

A financial adviser could be more help. Try your bank for free advise. There are bonds, high interest deposit accounts, property investments such as use the money for a deposit on a buy-to-rent apartment and he could eventually manage and expand on the business or just liquidate it then.

Answer 7

Premium Bonds

Answer 8

here in the usa I would say put it into a certificate of deposite , for atleast 5 years and ever 5 or 10 years renew it so to try to get the highest interest rate ...
p.s. make sure you pay the taxes on the interest each year ...

Answer 9

premium bonds, or use the 10k towards buying a second property and rent it out or the 24years. buy the time you come to sell it it will have increased at least 250% and it should have paid for itself (as long as it has been occupied) This would be the most sensible option.

Answer 10

put it in some sort of bond or something, although that will mean it will mature when he is 21, but could be useful to go towards a car or a house when hes older!