I have just sold a family business of which I am the main stakeholder and now have a significant amount of money to protect for my only granddaughter, who is under 18. What is the best way of safeguarding the money for her to have when she is older?
Camilla Wallace, head of the private client group and partner at law firm Wedlake Bell, says I assume you would like advice on investment and asset protection. As a solicitor I am not strictly qualified to give investment advice, so it is best to liaise with your usual advisers in this regard.
That said, in times of rising inflation clients are always keen to find safe harbour for their capital by investing in assets which will rise in line with inflation. Popular investments include real estate, companies with pricing power, index-linked equity funds or bonds, short-term bonds (so as to reinvest as and when interests rates increase), gold and, perhaps counter-intuitively, savings on deposit. Although it may not generate huge capital growth, cash can at least benefit from rising interest rates.
I have not included commodities (metals, energy, grains and so on). Though these can perform well in times of inflation due to rising prices, they are not without risk — similarly cryptocurrencies.
The simplest way of making sure your sale proceeds are protected for your granddaughter is to ensure that your will is up to date and reflects this wish.
I would consider leaving your estate, including the investments representing your former holding in the family business, in a discretionary trust held for her benefit with detailed guidance set out in a letter to the trustees. The latter would confirm how and when she should benefit and what type of investments you would be happy for the trustees to hold.
If you wanted to carry out some tax and estate planning during your lifetime, you could consider setting up an investment company with the two of you as shareholders. This would work particularly well if you are investing in equities as it provides for tax mitigation within the company on its receipt of dividends. If you fund the company initially via debt you can enjoy tax-free repayment of capital for the duration of the loan. You can retain control of the company by being the director.
With the supply of rental properties possibly on the wane as some buy-to-let landlords sell up due to increasing interest rates on their debt and a tightening mortgage market, real estate could be a good option. Depending on the value of the property, a trust could be used here whether as part of a single or hybrid ownership structure.
Finally, your granddaughter might prefer her inheritance to be invested on a sustainable mandate, which may not always be compatible with avoiding inflation but may engender a greater acceptance on her part of the value and purpose of the wealth she is to inherit.
Depending on her age and maturity you may wish to take her views into account now to ensure that how you invest the proceeds is in line with her values. This would also ensure that the inheritance does not come as a surprise and she is prepared to receive it.
Can the tax system help me to be greener?
I would like to support the CO₂ net zero agenda personally and through my manufacturing business. However, I understand that grants for electric cars have ended and there are no longer special capital allowances for investing in energy- and water-saving plant and machinery. Are there ways the tax system can help me be environmentally responsible?
Paul Falvey, tax partner at accountancy and business advisory firm BDO, says you are correct that these specific subsidies have ended. However, there are general tax reliefs to support investment in green technology.
The business community overwhelmingly believes the government should still use the tax system to support its net zero agenda, research has found. Views are split, though, on whether net zero should be achieved through taxing high carbon emissions or enhancing first year allowances for carbon reduction technologies.
If you are installing solar panels or new, more efficient machinery at your business premises, you may be able to claim the 130 per cent capital allowances super deduction to offset 24.7 per cent of the cost after tax. There is no limit on the amount you can invest and claim relief on, but this only applies to qualifying investments made before March 31 2023.
From April 1 2023, when corporation tax is due to rise to 25 per cent, you may still be able to get a 25 per cent subsidy by claiming relief for plant and machinery investments under the 100 per cent annual investment allowance (AIA).
The AIA is currently limited to £1mn of investments and is scheduled to fall to £200,000. However, it is expected the AIA and other capital allowances will be increased significantly next year to replace the super deduction.
These allowances do not apply to vehicles but there are specific 100 per cent capital allowances available for the purchase of electric cars or vans to help make your business greener. If you provide electric cars to employees (including yourself) the benefit-in-kind on them is minimal — just 2 per cent of the value of the car. You can claim relief for installing charging facilities at your premises.
At a more fundamental business level, if you are carrying out any technical research to make your processes or products more energy efficient or to use greener materials in your products, you may be able to claim R&D tax relief. If your research involves resolving a technological uncertainty, it is likely some element of the work involved will qualify for R&D tax relief. This can give a qualifying SME tax relief at up to 33 per cent of the relevant research costs.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Our next question
My husband and I own our house in Acton, London and our four-year repayment mortgage offer has just come to an end. We have moved on to the standard variable rate at 5 per cent. Our house is worth about £950,000 and we owe £150,000 on our mortgage. We would like to move to a cheaper mortgage, but we also want to move house in the next year and are worried about not being able to move our mortgage and being hit with early repayment penalties. Can you suggest any better deals for us to try to move on to, particularly those that would not stop us from moving home? Is there anything else we need to consider?
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