Lump Sum Investments

Got a lump sum and not sure what to do with it? Christine Ross of SG Hambros answers viewers' questions.

---

What are the main things to consider if you've got a big sum of money to invest?

It is an emotional issue. You have to say to yourself: "If the capital value reduced, how would I feel about it? Would I rush and take it out of the stock market?"

If you're going to feel like that, stick it in the bank. You have to have an idea of what you feel about risk. And spread your money - don't have all your eggs in one basket.

Ian Dawson from Leek in Staffordshire has inherited £25,000. He would like to use it to help his daughter, who is just starting university, over the next four years. What should he do?

The answer is going to be the bank for most of it because the money is needed almost immediately.

But there is some tax planning here. If he wants to invest it on behalf of his daughter in her name there is a

Don't have all your eggs in one basket

Christine Ross
SG Hambros

little rule that says income that exceeds £100 is actually taxed on the parent rather than the child.

The daughter will actually have her own tax allowance of about £4,500, so it's much more sensible to have it invested in her name. If he doesn't want to give it directly to her, one way is to go back to the solicitor who dealt with the inheritance and get them to vary the inheritance.

A deed of variation will actually direct the money to the daughter rather than the father. Other than those tax issues, find the best bank or building society account.

Bob Wartman: Home from home

Bob Wartman and his wife are retired and planning to travel Australia in a motor home for three or four years. They have sold their home in Northampton and have £120,000 to either invest or to buy a property to rent out and then live in when they come back. Which is best?

I think the property would probably be the best option.

The property market in the UK has stormed ahead so much. Because they intend to come back to the UK, they don't want to invest in other assets and then find out they can't buy what they want to live in when they come back.

They'll have a rental income in the UK which will potentially be taxable but they'll also have to look at their tax issues as residents in Australia. They won't end up paying two lots - there'll be an agreement between the two countries - but they will need to take advice.

A woman who is getting divorced is due about £80,000. She wants a regular monthly income, initially to top up her part-time earnings, then to boost her state pension in 10 years' time.

An ideal solution, as long as she's prepared to take some risks - and I think she needs to - is a portfolio of unit trusts, transferring that over the years, subject to allowances, into Isas.

To start off with, the yields from unit trusts are quite low - on UK shares you are talking about 2.5% maybe 3% on average. As the capital base grows over the years the dividend will grow. But she has time on her side - she doesn't need so much income straight away.

Over the years she can transfer the investments into Isas. That way she's making more and more of her portfolio tax-free over 10 years.

Mark Jones from Pontypridd has taken voluntary redundancy and received £40,000. He has a new job so doesn't need the money immediately. How should he grow it for future use?

He's very lucky he's found another job straight away, but I would still hang on to a contingency fund in case there are any hiccups.

Then the first thing to do is to pay off any debts. Generally savings after tax are going to pay you less than you will pay out on interest for your mortgage or credit cards.

If he does have some left over he should look first of all at Isas and unit trusts. But do keep some in a good high rate internet or telephone-based deposit account. That's not always the obvious answer but it is the sensible one.

---

The opinions expressed are Christine's, not the programme's. The answers are not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.