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Giving money to Nephews, LISA or SIPP

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JohnB
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Giving money to Nephews, LISA or SIPP

#105987

Postby JohnB » December 24th, 2017, 6:54 am

I want to give some money to my nephews. They are mid 20s, sensible, one in the public sector, the other unemployed, no financial pressures, neither likely to be higher rate taxpayers for years. They have the earlier, less gouging, student loans. They don't currently think about investments, so I want to engage them with the stock market. I have retired early, pay minimal tax and am in good health. I want to take full advantage of government tax breaks.

I was thinking of giving them £4000 pa each to go into a Hargreaves Lansdown LISA, investing in a Vanguard tracker. I don't want to be too prescriptive over what they do with the money, but want the unemployed one to get a job! The 0.45% fee on ETFs is higher than I would pay myself, but the £45 cap means it shrink after a couple of years. There don't seem to be any other share LISAs, and cash seems daft for the long timescales I want them to think about. I'd hope the early withdrawal penalty would dissuade them from taking the money out.

The alternative would be £2880 into a SIPP. Plenty of providers, but it seems a bit mean to tie their money up for 30+ years with pensions so uncertain.

Trusts seem overkill.

I would like to transfer the money in directly, but I guess that's not possible as you'd need to make a ISA/SIPP declaration and have the account tied to their current accounts, so I'd just need to write them a cheque and trust them, asking for statements seems overbearing. I'm assuming investing is a better bet than overpaying student loans at interest rates of base+1%

How would other people do it?

ap8889
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Re: Giving money to Nephews, LISA or SIPP

#105988

Postby ap8889 » December 24th, 2017, 7:43 am

AJ Bell Youinvest have similar LISA options but I think I am right in saying cheaper fees.

vrdiver
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Re: Giving money to Nephews, LISA or SIPP

#105992

Postby vrdiver » December 24th, 2017, 8:45 am

+1 for AJBell Youinvest.

Whilst they may be sensible lads, have they any history of saving? If not, then a sudden lump sum of cash, even if reduced by a withdrawal penalty, may be too much temptation: how would you feel if one or both decided to use the money to fund a road trip or a car?

If it was me, I'd have a chat with the lads and see what their aspirations are. If property purchase is in there, then an ISA makes more sense. If general investment and "retire early like you" crops up, then £2880 in a SIPP might be better - especially as the tax break would make them feel "successful" and encourage them to think about pensions in general. For the size of the gift, maybe you could run a three-way competition: each of you opens an account and you compare results each anniversary? A small prize or guidance might be in order, especially if you are planning further donations along similar lines.

Choosing a Vanguard tracker for them, whilst sensible, is unlikely to engage them in the process much. Personally, if you are having the discussion, I'd ask them what they would choose, and why? Apprentice-like task to select the best investment and make a case as to why you should be their investment partner? Lord Sugar had two winners this year ;)

Would be interested to hear how it goes, as could have the same problem in a few years!

VRD

Jabd2001
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Re: Giving money to Nephews, LISA or SIPP

#105993

Postby Jabd2001 » December 24th, 2017, 8:47 am

Giving money to adult relatives is tricky, especially if you have expectations about how they should use it (or perhaps even hope it will change their behaviour). It depends so much also on family cultures and values about what money means.
On the whole, I would tend to start with a premise that a monetary gift should not have strings attached, as generally the recipient will have a good idea about their own financial needs and priorities (if as you say they are normal adults) - which may not be the same as your perceptions of their needs and priorities. I imagine for example that the unemployed nephew probably also wants to get a job.

I have had experience of receiving financial gifts as a relatively young adult (20s and 30s). Money received from my own parents was generally always gifted outright, no strings attached, no interference. I always appreciated that, and felt it was right that as an adult I ran my own affairs and made my own choices and took the consequences. Perhaps the downside of that was that I did not show enough appreciation or gratitude. My experience of more controlled gifts from in laws however was that it made me feel beholden and not trusted, rather than more grateful!

Having said that, its not unreasonable for you to want to fund a longer term investment, and as an uncle or aunt you have less risk that the gift will get coloured by emotional baggage and meaning.

You don’t mention how the unemployed nephew is currently supporting himself, or whether this is a temporary ‘between jobs’ state or a longer term issue. Benefit levels for single adults are very low, unsustainable without other support in my view (friends, family, savings, charity or the Provident) and it is possible he has immediate and pressing financial needs. If you feel you couldn’t trust him to make a wise choice (consider that the money might be a welcome facilitator, help him move locations to find work for eg, or run a car enabling a wider choice of jobs), perhaps it would be better to wait to gift until both nephews are on a stable footing?

In terms of the practical choice between LISA and SIPP/personal pension. If the £4000 is likely to be the total investment, then I think you need to be very mindful of costs eroding the long term value. Are you sure the total cost of the LISA at Hargreaves Lansdown is £45? The LISA to my mind is a dreadful product, mixing incompatible short(ish) term objectives (house purchase) with long term pension planning - what kind of investment strategy suits both objectives?? SIPPs on the other hand tend to be quite expensive, when I looked into setting up pensions for my children the most cost effective option was a personal pension arranged through Cavendish. There might be a cheaper option for someone starting now, but by my calculations it won’t be worth transferring to a SIPP until the pot is worth about £50k.

Good luck, although I seem to have been a bit negative I think it’s lovely to be generous with your money. Hopefully the gifts will be both helpful and appreciated!

Midsmartin
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Re: Giving money to Nephews, LISA or SIPP

#106005

Postby Midsmartin » December 24th, 2017, 10:35 am

If you're not sure that they have any interest with investments, there is a chance that they will just leave the cash sitting in the ISA account earning probably 0%. How about giving them not cash, but shares in one or two very conservatively run investment trusts. If they are interested, they can maybe sell up and re-invest. If they are not, then at least they will earn a few dividends while they ignore it. I think it makes it marginally less likely they will just spend the cash on something now, because what they have in front of them is not cash.

TUK020
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Re: Giving money to Nephews, LISA or SIPP

#106053

Postby TUK020 » December 24th, 2017, 4:00 pm

I run something very similar for my kids (ages 21,19 & 17)

I pay in £4k into a S&S ISA (with Hargreaves Landsdowne) for each of them, each year.

It is a standard ISA, not a LISA, and the deal is that it is their explicit once-off pot of money that they can use as downpayment on a property, to start a business, blow on a wedding party, or keep as the basis for a pension.
The deal is that I will keep paying in as long as I can afford to do so (for years I hope), and up until the moment they touch it. Take a penny, and all payments into it stop.

At the moment I manage it for them, and they are content for me to do so. It is in a mix of HYP shares (accumulated 9 shares in each portfolio so far, and 2 ITs). I invite them to join in the decisions, but they are happy to leave it to me for the moment; I am hoping they get more interested in this as time goes on.
I issue caveats about good and bad times to sell in the market, and therefore my need of warning of several years to plan for liquidating for property purchase.

Whenever topic of getting on the property ladder comes up, they are aware of and grateful for this investment as the means of getting them started, but are not yet at the point of worrying about this.
From my perspective, it is set up in a way that will give them the freedom to choose how to use it, but not expect Mum & Dad to just fork out for whatever they want help with - a one shot deal that they will have to make difficult choice about how to use. The elder two are racking up tuition fee debt, and there is always the possibility that they choose to pay off their student debt with this when the get to earn a certain level. Again, this will come down to their choice.

I am toying with the idea of changing the deal when they leave uni - to 'match whatever they pay off in student debt each year', but have yet to make any firm decisions.

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Re: Giving money to Nephews, LISA or SIPP

#106123

Postby monabri » December 25th, 2017, 7:56 pm

Might I suggest to gift £3k to one nephew covered under the last tax year and the other £3k under this tax year. Then in April you can gift £2k to one of them. What happens to the extra £1k they can sort out for themselves perhaps. Thus there are no potential tax exemptions to worry about.

idpickering
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Re: Giving money to Nephews, LISA or SIPP

#106404

Postby idpickering » December 28th, 2017, 6:04 am

Jabd2001 wrote:
Good luck, although I seem to have been a bit negative I think it’s lovely to be generous with your money. Hopefully the gifts will be both helpful and appreciated!


It is nice I grant you. Four days ago my Wife and I loaned £10K to my daughter and her husband to help them clear some debt in order to secure a mortgage. I hope it is truly appreciated and they do the right thing with it. Their problems stem from student/credit card debt etc. It does nark me a bit to be honest, because as I said to them, think yourself lucky, as no-one ever did that for me. Bah humbug. :D

Ian.

JohnB
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Re: Giving money to Nephews, LISA or SIPP

#124185

Postby JohnB » March 12th, 2018, 10:43 am

I ended up going down the LISA route promising them £4k each a year and suggesting they invested in the Vanguard FTSE 100 tracker using Hargreaves Lansdown. They seemed happy with the plan, but not overjoyed by my largesse, or wildly excited at the chance to play the markets....


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