The Adviser: Philippa Gee, managing director, Gee & Company, Fee-Based Independent Financial Advisers, based in Shrewsbury. Tel: 01743 236982
The Advice: The proceeds from the matured policy should not remain in Premium Bonds for long, as you need to consider the important question of whether to repay the borrowings now, or invest the proceeds over the longer term.
MIRAS is still available on mortgages up to pounds 30,000, so your mortgage could be partly repaid down to this level and the residue reinvested. I suggest that you ignore this tax relief in your deliberations however as it currently amounts to only 10 per cent of the interest charge.
The question is whether an investment will produce a return higher than the mortgage interest you are paying.
On the one side, you are currently paying mortgage contributions at the variable rate of around 7.35 per cent pa on an interest-only basis, which works out to an annual cost of pounds 3,350 (with MIRAS) It is likely that interest rates will continue to fall over the short term. You could also possibly benefit from a discount of 1% if you were to retain the mortgage for a number of years.
If you were to instead invest the full pounds 48,500, we would need to take account of your very strong aversion to equities in deciding what type of asset we would recommend. While a cash account might produce a variable return of 6.5 per cent pa gross at the moment; giving you pounds 2,522 net of 20 per cent tax, a fixed rate or guaranteed fund would produce a lesser amount and you would need to pay the mortgage out of taxed income.
Taking into account your extremely cautious attitude, I would suggest you repay the mortgage and then invest the monthly sum you save by doing so. There is also the fact that you will still have significant borrowings in the form of a family loan.
The one concern is the possibility that you may want to raise a sum of pounds 15,000 in order to extend your business premises. Before repaying the mortgage, therefore, I recommend you contact the bank manager to negotiate the interest rate they would charge you on a commercial mortgage.
While you have deliberately held investment capital and income offshore, you are UK resident for tax purposes and as such are eligible to take out investments without full tax exposure, such as Tessas, Peps, National Savings and, from the new tax year, ISAs.With your attitude to investment risk, the Tessa would be an ideal place to start.
Jacqueline has no will and Edward wrote his 24 years ago when he lived in New Zealand. You have a family who are financially dependent upon you both, and assets which will trigger an inheritance liability on the second death, therefore you should arrange for your wills to be written as a matter of urgency.
Furthermore, the cost of life cover should also be investigated to replace that lost through the maturing policies and to provide an element of protection for the business.
With the falls that you have suffered from the investments you have set up, particularly in Far Eastern sectors, I can quite appreciate you wanting to cut your losses by selling them. However, I would urge you to have each investment carefully analysed and consider selling only those holdings viewed as having no hope of growth over the short to medium term, and those which have provided good gains to date. The rest should be maintained for the time being.
With the slightly uncertain nature of your business, I can understand the importance of paying any further pension contributions on a one-off basis, rather than continuing with a regular commitment. We need to investigate whether Jacqueline has been penalised as a result of changing her contributions, and if so, whether this can be reversed.
We also suggest that you request a state pension forecast (by filling in DSS form BR19) to complete the picture, and allow us to identify additional sums that may be required.Reuse content