How to get a good return on money inherited for retirement

quatro

When a relatives house is sold I stand to inherit a total sum of about £70-80k - so instead of getting my pension credit [I will be 60 in 6 months time] I need to get an income from this sum - as I will then lose my benefits.
Should I save it in a high rate savings account/s or buy an annuity, or a mixture of both?
Any suggestions as to how to make the most of this would be welcome.

Also - [over the year, if I saved it all in a high interest savings account] the interest I would get on the whole sum would probably be more than the single persons tax allowance. However it would be the only income I would get and as a non taxpayer I believe I can have the interest paid gross.
So how is any overpayment dealt with?

Lokolo

I can help you with the second bit.

You get a higher personal allownace when you get older, I cannot remember at which age and how much it is though. I think 65. (from website I have just been on)

However, you would have to annoyingly fill in a tax return form, you can easily calcualate it though, theres numerous calculators out there.

http://listentotaxman.com/

Go there, income, which will include interests, which I assume would be your only income if retired.

EdInvestor

quatro wrote: »

Should I save it in a high rate savings account/s or buy an annuity, or a mixture of both?

I would save it in high interest rate accounts at the moment, possibly putting a chunk of it in NS&I index linked certificates which are tax free (but don't pay a regular income).You can put up to 30k in there. I wouldn;t do an annuity at this stage, you are a bit young, rates are too low.

Later, when the financial situation is more stable, I would consider putting perhpas 20% of the money in stocks and shares (funds or shares paying a tax free dividend income) which will give you some long term protection against inflation.If kept only in cash your savings and income will go down over time.

At the age of 65 the old age tax allowance kicks in.It is just over 9k now but will soon go up again to around 10k p.a..At 60 you only have the ordinary personal allowance, around 6k this year.

Also - [over the year, if I saved it all in a high interest savings account] the interest I would get on the whole sum would probably be more than the single persons tax allowance.

If so, you will morph instantly into a taxpayer...

However it would be the only income I would get and as a non taxpayer I believe I can have the interest paid gross.

...so this would not be relevant.

cheerfulcat

Hello, quatro

Have you used your ISA allowance? If not, the first thing to do is open a cash ISA.

You could also think about using a stocks and shares ISA ; you don't have to buy equities if you don't want to, you can buy gilts directly - not a great return at the moment ( about 4.5% but tax free in the ISA ) but at least you'll have used your allowance.

As Ed writes, at some point you should consider equities for a portion of your money. Equity income funds and corporate bond funds should both provide a bit of income and one would hope for some inflation proofing. At some point in the future you could also look at property funds.

ed123_2

....my understanding is that you can't buy an annuity out of savings, it has to come from savings within a pension fund (could be wrong). You can only get the interest paid gross in your total income is below the personnel allowance. However there is a band of savings income above the personnel allowance (approx £2k) which is taxed at 10% if you have no other income. I would have a word with HMRC local tax office.