POWER PLAY
Gareth Shaw’s advice on how to invest on behalf of an elderly relative
CAN I invest my mother’s money with Power of Attorney?
Dear Gareth,
My 96-year-old mother is in a care home, with the costs covered by a care annuity combined with her pension income. We’ve sold her home and she now has over £500,000 in her bank account.
I hold a Lasting Power of Attorney and would like to protect her money from inflation and even aim for some low-risk growth. I am considering purchasing an investment bond on her behalf, or opening an account with an investment platform to invest in funds. What are the benefits and drawbacks to this? And how can I ensure she continues to pay tax at the basic rate?
Name supplied, Stafford
Gareth says…
This is an interesting question which, I suspect, ever more of us will have to deal with as life expectancies increase. One of the most prudent things you can do is arrange Power of Attorney, so your loved ones have the authority to manage your affairs should you be unable to do so.
You can only set up a Power of Attorney while you can still weigh up information – known as ‘mental capacity’ – so it’s worth putting one in place early on.
The type that you have – Lasting Power of Attorney (LPA) – is the most common. There are two types of LPA: property and financial affairs gives your attorney the power to make decisions about your money and property, while health and welfare LPA gives them the power to make decisions about your health.
You’ve told me you have powers of attorney over your mother’s property and financial affairs. To find out what that enables you to do, I spoke to the Office of the Public Guardian (OPG), the body that oversees the rules for power of attorney.
It strongly recommended that your LPA be registered with it, otherwise you will not be able to act on your mother’s behalf. The OPG also said that, before you act, you should consider if your mother has the mental capacity to be involved or make the decision to invest herself. If she does, decision-making can only be made with her permission, even if the LPA has taken effect.
In terms of the investment decisions you can make, there are a few things to consider. If your mother has put in specific restrictions on the actions you can take, these must be respected. Even if she hasn’t, you must still act in her best interests. The OPG told me that as her attorney, you should follow your mother’s past wishes and feelings.
I would suggest taking professional advice with such a large sum. Investing means putting your mother’s capital at risk, and you need to consider if that is something she would have been comfortable with when she was managing her own affairs, and also the views of any heirs.
Forgive the pragmatism, but you should also take into consideration your mother’s life expectancy. It’s sensible to view investing with a minimum five-year timeframe, so you can ride out the highs and lows of the stock market. Consider the potential need to liquidate your mother’s investments in the event of her death – if you had to do so after a short period of poor investment performance, you’d be potentially making a loss.
With such a significant sum, tax will be a factor. Using ISAs is the first step, but that would only allow you to shelter £20,000 a year from income, dividend or capital gains tax. Your mother, as a basic-rate taxpayer, can earn £1,000 in savings interest, as well as £2,000 in dividends or £12,000 in capital gains before paying tax.
Assuming you were to use an Isa for £20,000 of her £500,000, you could bust these tax-free limits. Putting £480,000 into the best instant-access savings account, paying around 1.5 per cent, would result in more than £7,000 in interest, on which 20 per cent tax would be paid on £6,000 – a bill of £1,200. Would this additional income push her into a higher tax bracket?
These are the kinds of decisions a good professional adviser would be able to support you on. You can find one using the Money Advice Service’s Find an Adviser portal at directory. moneyadviceservice.org.uk.
One of the most prudent things is to arrange Power of Attorney.
Gareth Shaw, Head of Money at Which?