Investing a large inheritance

Hamilton10_2

Hello everyone,

I'm 31 and have just come into an inheritance of around 700K. I'm married with two young children. I have a mortgage of around 65K which I will pay off straight away. I am now thinking about what to do with the rest.

I am not an experienced investor, but have been reading masses and checking out websites to get up to speed. Obviously being relatively young and with no mortgage I am prepared to take a few responsible risks and aim mostly for capital growth rather than income.

My first thoughts were to invest 28K in ISAs for my wife and me, and two more for the children. Probably maxi ISAs, investing in one growth fund of funds for each ISA (Jupiter Merlin Growth, Investec Managed Growth, New Star Active, CF Miton Spec Sits).

That leaves about 600K left. This is where it gets trickier! We are thinking about moving to a larger house in 2-3 years time and at today's prices would probably need around 400K of the remaining 600K. Therefore I don't really want to tie up this money in long-term investments, but on the other hand it seems like so much money to let wallow in instant access accounts. Any advice would be appreciated!

With 200K of the 600K left though, I suppose I could invest this amount of other OEICs / Unit Trusts, but am unsure as to how much I should allocate to each fund.

Obviously this is an amazing 'problem' to have, but any advice is most welcome!

dunstonh

My first thoughts were to invest 28K in ISAs for my wife and me

Too late for £28k. You are stuck with £14k now.

With 200K of the 600K left though, I suppose I could invest this amount of other OEICs / Unit Trusts, but am unsure as to how much I should allocate to each fund.

OEICS/Unit Trusts/SICAV/REITs (collectives as they are often known as today) may not be the most tax efficient option for you after ISA. Nowadays, the same collective funds are available on the various tax wrappers. Also, the cost difference between those tax wrappers is not what it once was.

Hamilton10_2

Thanks for the response dunstonh.

Sorry, I meant 28K in total for the four of us.

Re tax wrappers - I could stick some in a SIPP, but I want a bit more flexibility than a pension would give me. Can't really think of any others that would be better than investing direct in collectives. Investment bond wrappers don't seem that much more advantageous. Perhaps I'm missing something?

zzzLazyDaisy

Hamilton10 wrote:

Hello everyone,

I'm 31 and have just come into an inheritance of around 700K. I'm married with two young children.
My first thoughts were to invest 28K in ISAs for my wife and me, and two more for the children.

AFAIK children under 18 cannot have ISAs (but I'm willing to stand corrected if anyone knows different?)

Chrismaths

And you can't open an ISA till you are 16 - and if the money comes from you, any income over £100 in a year will be taxable on you as the parent until the child is 18.

Hamilton10_2

Just checked - you're right. You can have a Cash ISA if you're 16 or over.

dunstonh

Investment bond tax wrapper (onshore or offshore) could be better than the collectives due to the way capital gains tax is handled. There is no personal CGT to pay on an investment bond. There would be potentially on collectives. There are also advantages with investment bonds if you are a higher rate tax payer and are likely to be a basic rate taxpayer in the next 20 years. Also the charges can be lower (they can be higher too so no assumption should be made there).

If you are not a higher rate taxpayer, will the investment income bring you into higher rate tax payer status? Any increased income you get could hit working/childrens tax credits you may get. So investment bonds could help there or you may have to pick low yield collective funds to get round it.

Sometimes a combination is required for optimal tax efficiency and flexibility. Also, with providers, if you go down the collective route for some/all of the remainder, you should look for providers that will switch your collectives into ISA every year without charging you anything. Not all the fund supermarkets do that and you can find that you pay another initial charge.

Fund choice is a personal thing based on attitude to risk, taxation and goals. Whilst you have picked a few fund of funds, I personally wouldnt with the amount you have. I would certainly go with asset allocation and spread it wide and some fund of funds could be used for some of the money. However, I would want to include funds which you havent mentioned which wouldnt be included in fund of funds.

Hamilton10_2

Thanks again for the advice. I'm already a higher rate tax payer, although my wife doesn't work, so we will obviously spread the assets accordingly. Will investigate bonds more as well.

The few fund of funds I quoted were just ISA choices, not pumping the rest of it into them. I would certainly spread the remainder across different funds investing in different countries, sectors, assets - one of my original questions was approx how many different funds for that amount of money?

dunstonh

I would place it on the basis that £100k would be 10 funds. £200k would be 20 funds etc.

Chrismaths

If you can pick the right funds, 7-10.

Dunstonh is right about the insurance bond, it's the best option for you currently. I'd prefer an offshore one, as the gross roll-up will provide significant benefits over a longer period. If you need to realise money in excess of the 5% per annum allowance, you can also assign segments of the bond to your kids, who will probably be non/basic rate taxpayers, and pay no tax at all.

You should probably also put the assets outside PEPs and ISAs into your wife's name to use her tax allowances.

EdInvestor

That leaves about 600K left. This is where it gets trickier! We are thinking about moving to a larger house in 2-3 years time and at today's prices would probably need around 400K of the remaining 600K.

I'll bet you end up moving to a larger house in about six months' time