Wills, estate planning and inheritance tax may inspire less enthusiasm than other aspects of wealth management, but their importance to your family’s long-term financial health means they cannot be neglected. Here are some key errors to avoid.
Rising prices increasingly shut young people out of buying and owning property. Naomi Heaton, Chief Executive of London Central Portfolio explains.
With UK wide house prices already standing at 6.5 times average salaries and an even higher 15.5 times in London, becoming a first-time buyer has become increasingly difficult for the millennial generation.
Many struggle to save up for a deposit and the death of 100% mortgages, post credit crunch, with tighter controls applied to lending across the board, is adding to the pain. The proportion of homeowners aged 25–34 dropped from 59% in 2003 to 36% in 2014, according to a survey by Shelter. This also revealed that half of parents think their children will need inherited money to get onto the housing ladder and that one third of buyers in this age group already rely on gifted money from parents.
With prices rising all the time, and projected to continue, the moral of this story is that parents need to plan early if they are to help their children make the first step, especially if they want to purchase a piece of prime London property. Essentially, parents need to be able to track market growth so that a deposit put down in a child’s early years will be enough when they come to buy, despite aggressive house price inflation. Helping individuals achieve investment objectives just like this is what London Central Portfolio’s asset managers have been focused on in over 25 years of running our Prime Central London Residential Funds.
With the bar rising ever higher for home-ownership, we believe that parents with an eye on the property ladder will appreciate the logic of an investment that taps into this growth to help generate that all-important (and ever-larger) deposit. London Central Apartments III (LCA III) will invest in a portfolio of one and two bedroomed flats that will be renovated, interior designed and let to the rental sector. Investors can select how much they wish to invest and can look forward to a projected return of 12.9% per annum after a five-year period, well above price growth in the general domestic market which has averaged 5% over the last year.
LCA III has been structured with parents in mind, helping them save tax-efficiently for their children’s future. It is eligible for direct investment by parents on behalf of their children and through Junior ISAs or NISAs.
JISAs have been available since 2011, with a limit in 2015 of £4,080 a year for each eligible child, as part of the Government’s commitment to encouraging saving for children. Money given to minors through other saving methods, generating an income over £100, is treated as parent’s income and taxed at their highest rate. JISAs are free from both capital gains and income tax. The investment limit in a NISA is £15,000 a year and could be held by the parents to be gifted at a later date or by their children from the age of 18. Again, this is free from capital gains or income tax on exit.
While a buy-to-let (possibly to eventually give) investment can also help parents fulfil their children’s property dreams, the realities of being a landlord are not for everyone. One of our investors, subscribing on behalf of his two children into LCP’s last fund, both directly and through their JISAs, said: “At a time when the Eurozone is trembling, the Middle East is quaking and equities are a gamble, where can I save tax-efficiently for my children’s future? In my view, the only possible rock-steady investment is in property: property located in areas of high demand and limited availability in the most sought-after capital in the world. LCP’s fund was ideal. Not only could I select the amount to invest to suit my purse, but it saved me the bother and worry of managing a buy-to-let myself. The longer-term nature of the fund means this money is securely locked up for my children. Given the past performance of Central London property over the last 50 years, and the performance of LCP’s previous funds, I have high hopes my children will have an adequate deposit saved once they are ready to buy.”
LCP’s previous funds, closed in 2007, 2010 and 2013, have seen total capital appreciate since acquisition of 69%, 60% and 36% respectively. Our fourth fund, London Central Apartments II, has just closed to new investors. LCP’s latest fund, LCA III, is currently accepting expressions of interest.
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