| Non-motoring > investment enquiry | Miscellaneous |
| Thread Author: devonite | Replies: 13 |
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New Thu 16 Aug 18 12:12
investment enquiry - devonite
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Wifey and I are getting on in years now! and I am not in the best of health, we have been looking at idea's of freeing up some cash to make our remaining years a bit more comfortable. We have both decided against equity release co`s, but I had the idea of offering my brother an opportunity to invest about £20,000 in a share of the house, in return, when we peg it, the house to be sold, (estimate worth 70 - 80,000 ) and 50% of the sale price to be returned to him,and the remaining 50% to be shared amongst our kids and grand kids. Now I'm no financial wizard and at this stage it's just an idea we are mulling over, obviously there will be tech details to sort out by legal eagles if we all all agree to go down this route, but I reckon it will be a better return on his money than it just sitting in his bank account. Idea's and opinions welcome please, if you think it a bad idea don't be afraid to say so!! ;-)) |
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New Thu 16 Aug 18 13:19
investment enquiry - Driver
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In the same tone as "The Shawshank Redemption" I am sure that you love your brother. The problem that I see is that you cannot see in to the future with regards your brothers financial affairs. Should something terrible happens and your brother is declared bankrupt then would part of your house may be considered an asset by his creditors? Last edited by: Driver on Thu 16 Aug 18 at 13:19
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New Thu 16 Aug 18 14:31
investment enquiry - Ambo
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This is a simple idea which could end up in a terrible tangle. For reasons Driver gives, I would get outline agreement and then get an estimate of costs from your solicitor. Your brother would want to have their proposal vetted by his own and there would be a costs to both of you. I assume your brother has £20,000 going spare. Will he not consider the opportunity cost, in terms of interest, dividends and capital gain lost? It is exactly one year's ISA allowance, for example. |
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New Thu 16 Aug 18 14:47
investment enquiry - Falkirk Bairn
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There can be lots of falling out over the assets of the deceased - especially when there is a house at stake. It needs to be a charge on the house - not just a shake of hands & a cheque handed over. Looking at £20K - the Rule of 72 is useful - divide 72 by the interest rate you might pay on a loan. say 4% interest - 72/4 = 18 years for the debt to double say 6% interest - 72/6 = 12 years for the debt to double The complication of your "offer idea" is that the value of the property may increase. e.g £70K today, assume 2% increase per year =£85K+ after 10 years £70K today, assume 3% increase per year =£94K+ after 10 years If you both die at 10 years the lender will have his £20K growing to £42.5K or £47K - that is nearly a double digit return. Take advice. That said a friend lent his son £30K on the shake of a hand & the repayments are interest free over a number of years. What if his son defaults? The friend said he will be locked out of the father & mother's estate when they peg it - 6 figures for each of the 4 x sons - he would be crazy to default. |
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New Thu 16 Aug 18 15:18
investment enquiry - Driver
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>>That said a friend lent his son £30K on the shake of a hand & the repayments are interest >>free over a number of years. What if his son defaults? The friend said he will be locked out >>of the father & mother's estate when they peg it - 6 figures for each of the 4 x sons - he >>would be crazy to default. I lent my eldest £3k towards his first car in May. It would have been better to go PCP / Lease but heyho. He saved £7k in his first year at work and the car was £8k, plus £1k for insurance. It also gives him £1k odd of cash-flow. Repayments start from September at £300 a month for 10 months - when his current loan of £2,500 to me gets repaid. It was to repay his uni overdraft which was just about to switch to 15% APR or worse. Anyway, I would overlook / forgive a default based on means, like illness, accident, unexpected event etc. That's why I offered the loans in the first place. I knew what is was like when I first borrowed - at significantly higher rates in the '80s and '90s and I can afford to cushion the blow to him. If it were a bank loan and a default then it would cost him much more and be more unpleasant and in my mind its a couple of new iPhone 10s to me, so I am happy to write it off and if I get it back, then that's a bonus. He's a good lad and doing well - earning in his early 20's what it took me till my late 30's to get to! |
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New Thu 16 Aug 18 15:43
investment enquiry - No FM2R
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As said by so many; Far better to have a contractual arrangement with some third party. No disasters, emotions, misunderstandings or differing and changing expectations. |
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New Thu 16 Aug 18 17:25
investment enquiry - Driver
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>> As said by so many; >> >> Far better to have a contractual arrangement with some third party. >> A mate wouldn't sell his endowment policy because a third party would have had an interest in him dying early. (Who knows what someone would do for a few £100k.) |
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New Thu 16 Aug 18 17:40
investment enquiry - martin aston
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Another vote for caution. There might be tax implications if your brother has part ownership of a house that is not his primary residence. Also, sorry to be morbid but you are assuming he will outlive you both. He may not and what you propose would have implications for his estate and your security. There may be other more appropriate options (remortgage?) than the two you have considered. As others have said you need professional legal and financial advice. I hope you can work out something that suits all parties. |
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New Thu 16 Aug 18 18:37
investment enquiry - Manatee
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What if your brother falls off the perch before you do? From a tax perspective, your brother doesn't have to own part of the house. He can just give you £20k and you can leave him half your house in your wills, subject to the other having predeceased. I'm assuming there would be no interest - the implication is that half the house value of £35k-£40k would include allow for that, with your brother taking the risk on how long he has to wait for it, and also having the benefit of half of any any increase in the house value too. It could get a bit messy however, especially if done on trust - bearing in mind that when it matters, one of you will be dead. |
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New Thu 16 Aug 18 18:42
investment enquiry - No FM2R
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Manatee makes a valid point, however even then imagine if your Brother suffered some calamity and needed his money back when you were still alive. All potentially fraught, IMO. |
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New Fri 17 Aug 18 10:07
investment enquiry - Mapmaker
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It sounds like a good idea; keep it all in the family rather than giving it to some loan shark company. But there will be legal costs for both sides in order to get a water-tight loan in place that will avoid all the problems that others have discussed. >>What if your brother falls off the perch before you do? The loan becomes an asset of the estate, and is inherited by his children as normal. They get the cash (and the interest) when OP dies. >> imagine if your Brother suffered some calamity and needed his money back when you were still alive. The terms of the loan can easily deal with that. It couldn't deal with the 'humanity' aspect if suddenly your brother was in need on account of having helped you out - but then your brother might be stinking rich. But if he and his wife both need five years of residential nursing care at £1500 per week that's the thick end of a million quid. >>Should something terrible happens and your brother is declared bankrupt then would part of your house may be considered an asset by his creditors? The terms of the loan can easily deal with that. Repayable only on death. The creditors can take ownership of the loan and wait for OP to die. >>Tax It looks to me as though the profit is quite likely to be interest. If that is the case then it seems likely that in the year you die your brother will receive interest equal to the difference between what he gave you and what he gets back, and will be taxed on it. I guess it might be some other sort of an asset and subject to CGT. As others mentioned it is unlikely to be tax free as it isn’t a share in the house your brother owns. And he’s certainly not inheriting it from your estate on death. >>A mate wouldn't sell his endowment policy because a third party would have had an interest in him dying early. (Who knows what someone would do for a few £100k.) That’s just silly. |
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New Fri 17 Aug 18 10:19
investment enquiry - Driver
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>> >>A mate wouldn't sell his endowment policy because a third party would have had an >> interest in him dying early. (Who knows what someone would do for a few £100k.) >> >> That’s just silly. >> I know that and you know that, but there is no accounting for peoples feelings! |
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New Fri 17 Aug 18 10:50
investment enquiry - devonite
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| Thanks for the advice folk, - you all make valid points we hadn't considered ! - think we'll keep all the house for now and let it be disposed of via the existing wills we have. We'll just have to struggle on as paupers then! Hey -"Ho! ;-) |
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New Fri 17 Aug 18 12:50
investment enquiry - Ambo
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>>A mate wouldn't sell his endowment policy because a third party would have had an interest in him dying early. (Who knows what someone would do for a few £100k.) Policies can be traded and are regularly sold at auctions to outfits that sit back and collect the proceeds (the "embedded value") after the death. By this route any such risk is eliminated. The main risk is that the lump sum accruing to the policy holder is found over time to be insufficient; people generally underestimate how long they will live. The same danger exists of course with partial sale of pension rights. |
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