Investment planning - here we review each of Dan & Tara's investment holdings and provide additional background information on ISAs and unit trusts

Question 1

current account

Answer 1

• £10,000 each
• safe in so far as covered by FCSC, but exposed to inflation risk
• sole ownership so go to twins on death if no will made

Question 2

deposit savings account

Answer 2

• £150,000 each
• 12 month £1m temporary high balance rules apply as funds come from proceeds of house sale overiding usual £85,000 rule
• exposed to inflation risk
• likely to be variable rate (very low at present)
• income falls within starting rate for savings income and taxed at 0%

Question 3

Cash ISAs

Answer 3

• £40,000 Tara
• we don’t know what the interest rate is
• nor the provider
• the couple have nearly 90% in cash which seems high given their high ATR
• Although we don’t know how much they plan on setting aside for school fees nor where they intend to place this
• exposed to inflation risk
• covered by FSCS

Question 4

premium bonds

Answer 4

• £50,000 each
• HM Treasury guarantee (safe)
• prizes tax-free, but not guaranteed (and no of prizes about to drop)
• not in line with ATR
• could consider retaining some / all as emergency fund (no notice, no penalty)
• could encash without incurring CGT liability

Question 5

NS&I income bond

Answer 5

• £300,000 joint
• HM Treasury guarantee (safe)
• Income paid gross but taxable, but covered by starting rate for savings income (0%)
• not in line with ATR
• could encash without incurring CGT liability
• rate about to drop from 1.15% to 0.01%
• no notice, no penalty

Question 6

stocks and shares ISAs

Answer 6

• they have not used their ISA allowance for current tax year (£20,000 2020/21) - this should be used
• £30,000 each in Uk Equity income
• may be a little on safe side for high ATR
• accumulation units - means that distributions are reinvested rather than paid out
• tax free interest, dividends and gains
• within FSCS limit
• on death, ISA becomes deceased’s ‘continuing ISA’
  
  • cannot add further funds
  • tax free until earlier of estate being administered,
    the ISA is closed or 3 years from death
• as they are unmarried they cannot benefit from additional permitted subscription, but I’ve included details below in case you’re asked to tell them what they’re missing out on:
  *surviving partner can invest the higher of the value of the continuing ISA on death or on the date when the ISA wrapped investments are passed on to them as an ‘additional permitted subscription’
  *this protects the ISA wrapper
  *and is in addition to the surviving partner’s own ISA allowance
  
  • the surviving partner must register the APS with a provider
    *they can transfer the holdings ‘in specie’
    *or they can sell the holdings and transfer cash to an ISA up to the value of the APS
    *APS can be used the later of up to 3 years from date of death
    *or up to 180 days after estate is wound up