What to do with approx £100,000 ?

stars_bright

I have recently inherited half a house which I have been told by an estate agent should sell for about £200,000. I was thinking of renting the house out but the person who has inherited the other half wants to sell. I need to decide what to do with the money I will get, which, along with some cash will probably be around £100K.
My partner and I earn about £12K per annum each and struggle to manage our normal living expenses (one child at Uni and one hopefully starting this year) so I know that it could easily be gradually used up if we are not careful and I am anxious for this not to happen. I reckon we could easily spend around £10K on work we would like to do to our house. We are both 49, we have no mortgage and very little in the way of pension arrangements.
I don't know whether we should use the £100K to buy a property to rent out (either a flat near us or maybe a holiday property which we could rent out in the summer and use ourselves also. Or maybe we could buy a business, eg a cafe and both give up our current jobs and run and work in that instead. I know if we just put it in the bank the interest will not be much.
I am really at a loss to know what to do as we have never had money before and I am really worried that we will make a bad decison. Any advice would be appreciated.

jimjames

Its probably worth getting some professional advice that can take all your factors into account. With no pension provision that may be an area to look at, with tax relief you'd get an additional payment into the pension from the government.

If you've never run a business before then buying one to make money from is probably a very high risk venture.

jem16

Would really advise seeing an IFA for this - check https://www.unbiased.co.uk for one in your area unless you have a personal recommendation. Make sure you take independent advice and not tied advice from a bank.

WHITEVANMAN

Do either of you have any experience of running a business?

Starting a new business is difficult at the best of times, and these times certainly arent those.
Running a cafe is much more than cooking serving and washing up, and you will need to be making a profit over £24000 if you both give up work, to be making the best use of your money you would ideally be looking to adding say another £16000 profit to that.
I would suggest a turnover of at least a £100k would be required to get even near this in a small cafe, dependant on costs. also the lower your initial turnover the less you will be able to take as a percentage as many costs will be fixed.
I can assure you that is no mean feat for any unestablished business, financial management of costs and wastage are a very important factor in the food business and need a constant focus to maintain profit margins as well as maintaining a steady flow of continued custom.

Buy to let is definately not without risk either and if you do you would need to retain some of the funds to cover costs and downtime in rental periods at the least.

If you are determined to make use of your funds for a business opportunity, I would suggest getting an IFA and sorting out some investment strategies to maximise your capital, while you use the next year or so to seriously research, understand and plan for any venture you may look to take on.

Dont be overwhelmed with your inheritance, there is no need to rush into anything, be patient and wise.

stars_bright

Thanks for the advice, I have made an appointment to see an IFA

Jonbvn

Good article on the MF regarding the British love of property, which seems relevant to the OP.

http://www.fool.co.uk/news/investing/2011/01/27/we-still-prefer-property-to-shares.aspx?source=ufwflwlnk0000001

This snippet is interesting:

....shares produced higher returns than property for almost all 20-year periods in the half-century between 1960 and 2009. Even over shorter periods, equities are the top-performing asset, coming top in almost two-thirds (64%) of all five-year periods in the past 50 years.

stars_bright

Well I saw an IFA roday. He talked with me about my situation etc and is going to come back with his recomendations. He did not recomend buy to let or setting up a business. He also was against making extra payments into my pension. He suggested going for an ISA and unit trusts , medium risk. He said that way I can get to the money in an emergency. He charges 0.5% per year to manage the funds and review them every 3 months.

dunstonh

He did not recomend buy to let or setting up a business.

If you are not experienced on that front and given the tax and time issues as well as potential risks, it is not surprising to see it not recommended.

He also was against making extra payments into my pension. He suggested going for an ISA and unit trusts

Pensions and ISAs are tax wrappers. Unit trusts are unwrapped (not in a tax wrapper). Nowadays pensions are not products. They are just a tax wrapper in the same way an ISA is. There are also other tax wrappers. Many of which allow the same investments with the same returns and same charges. The only difference is the tax handling and maturity process. So, when it comes to investments, you look at pensions from a tax efficiency point of view compared to the other tax wrappers rather than a "product" in its own right. Its just how things have moved on over the years. S&S ISAs very often end up the best option. Especially if you have both have sufficient income to use up both of your personal allowances in retirement.

He charges 0.5% per year to manage the funds and review them every 3 months.

That is the going rate for servicing (some charge higher but 0.5% is the benchmark).

DiggerUK

stars_bright wrote: »

Well I saw an IFA roday... He charges 0.5% per year to manage the funds ...

From the way you described your situation at the start of the thread, it is obvious that you have more than the necessary 1/2 ounce of common sense to set up S&S ISA's, or Unit Trusts yourself.

The providers of these products will tell you what 'risk' they are, then all you need do is give them the once over every so often to check their progress.

Why do you feel the urge to give away 500 pound, each and every year from here on in, to someone you have never met before, and will not suffer if anything goes wrong.

jamesd

stars_bright wrote: »

Well I saw an IFA roday. He talked with me about my situation etc and is going to come back with his recomendations. He did not recomend buy to let or setting up a business. He also was against making extra payments into my pension. He suggested going for an ISA and unit trusts , medium risk. He said that way I can get to the money in an emergency. He charges 0.5% per year to manage the funds and review them every 3 months.

That advice seems good and the fee, probably paid out of commission from the investments, is normal enough for the service being provided. Assuming the investment choices match your needs you seem to be getting treated reasonably and properly.

Tell the IFA about your income desires. It's safe to generate between 4% and 6% of the capital amount as income and expect the investment and income to grow with inflation. So that's potentially an extra £4,000 to £6,000 of extra income a year. Most of it will be tax free after a few years, with the IFA arranging to put the income producing parts into a stocks ands shares ISA first.

Be sure the IFA knows whether you're happy to use the ISA allowance of your partner, which means giving them the money to do it.

Completely standard advice in cases like this is to put the money into a S&S ISA as fast as possible and to sell some investments and buy others before April if there are any capital gains, so you don't accumulate a capital gains tax liability. It's only18% for you but it's 18% that can be avoided easily enough. CGT is only paid when you sell, out of the profits from the sale, so don't worry about this, just know that the IFA should be doing it and ask them to.

DavidHayton

DiggerUK wrote: »

From the way you described your situation at the start of the thread, it is obvious that you have more than the necessary 1/2 ounce of common sense to set up S&S ISA's, or Unit Trusts yourself.

The providers of these products will tell you what 'risk' they are, then all you need do is give them the once over every so often to check their progress.

Why do you feel the urge to give away 500 pound, each and every year from here on in, to someone you have never met before, and will not suffer if anything goes wrong.

I disagree with DiggerUK's first point: it is one thing to build up an investment portfolio slowly over the years, making mistakes at the start ... with small amounts of money. It is quite another to suddennly start with £100k.

However, I agree completely with his objection to paying £500 year after year in trail commission. Far better to see an IFA and pay a fee for their time. They should then rebate all the commission back to you and you will pay for the advice that you get. No more; no less.

Best wishes, David