Large inheritance - WWYD?

kleesrosegarden

Husband and I have just found out we are due to inherit £110k in a few months.

We don't have any non-housing debts (or won't by the time the inheritance arrives, as I'm paying off the last of a credit card). We have £120k equity in the house we have just sold and are buying another for £500k with a 2 year fixed mortgage at 2.24%, the best deal we could find. We had intended to remortgage and have a revaluation done at the 2 year point to benefit from lower LTV rate. The new property doesn't need any work. We'll have about £20k rainy day savings by the time we move in, not including the £110k inheritance.

We are thinking that the best thing to do would be to put the inheritance money in a couple of high interest savings accounts for the 2 year period, then when we are remortgaging, putting the whole lot into the house and having a much smaller mortgage and hopefully mortgage term.

Would we be better off going for a buy to let property with the money instead? We live in London and if we did do BTL, the property would also be in the city which would feel like a fairly safe investment. Or should we do something else entirely? Would really welcome others' thoughts.

ruinen

How old are you? Are you both employed? Do you have adequate pension?

eskbanker

ruinen wrote: »

How old are you?

I would hazard a guess at 36, or maybe 37!

kleesrosegarden wrote: »

We are thinking that the best thing to do would be to put the inheritance money in a couple of high interest savings accounts for the 2 year period

That would probably be a good call if such things existed! Do you have the option of renegotiating the 2 year mortgage at this stage or are you already past the point of no return?

xylophone

If you wish to keep the money in cash, then you could look at interest paying current accounts - 6 TSB Classic Plus between the pair of you, 3 Nationwide FlexDirect, then a couple of Santander 123, a couple of Club Lloyds etc, being careful to read the terms and conditions and carefully working out cycling money round the systems?

http://www.moneysavingexpert.com/banking/compare-best-bank-accounts

jenfa

Firstly sorry for your loss.

I inherited a large sum a few years ago and at that time my husband and I had worked very hard to pay off our mortgage. We had a son and took advice about transferring money to him for his educationas we felt we didn't need it too much, however, we were told that he would pay tax on it due to the interest. In the end we sunk most of it into a large permanent residence that we have renovated with the intention of selling it to pay for son's house deposit when we want to downsize in the future.

Personally I wouldn't have a mortgage and would look at paying that off first, even though interest rates are low. If for some reason either of you lost your jobs you wouldn't have to worry about the bank coming and taking your home off you if you couldn't keep up repayments.

The thought of bad tenants and capital gains tax put us off buying another property. If the value of your main residence goes up there is no CGT. It totally of course depends on how you live etc as to what suits you.

hcb42

with only £120K equity in a £500K property, I would pay down the mortgage also...

atush

I would increase your rainy day fund by 10K, and pay 50K off mtg. Then I would look to pensions and S&S isas with the other 50K. The ISA money could be used to make a payment later should the need arise.

To put ALL the 110K into your mtg on the new house may not be the best thing with only 20K in the bank and no mention of pensions.

kleesrosegarden

Thanks very much for the responses. We're both 36. I have an adequate pension which is made up from a number of different funds (different jobs) but which is now appreciating well (current estimate of £15k pa pay out, but now in a scheme where my employer is putting in 10% to my 5% on the highest income I've earned, so should be higher by the time we need it). Husband has only started investing in his pension this year which will be final salary, LGPS. Both in secure permanent jobs, £110k annual household income. No kids yet, although we'd like one! We're past the point of no return on commitment to the mortgage - we should be completing in six weeks.

So - from a mixture of those pieces of advice above, would it be sound to put £60k into the house in a mixture of allowed overpayments for the next couple of years and balance of that £60k on remortgage, then a mixture of investments (maybe bonds?) and cash holdings with the remainder?

kleesrosegarden

PS sorry - are bonds preferable to ISAs, or the other way around? I am only just adjusting to the fact our debts and student loans are repaid, and that we have any savings at all, so am a real newbie at this.

kidmugsy

kleesrosegarden wrote: »

Both in secure permanent jobs, £110k annual household income.

Then one or both of your is a higher rate income tax payer. Therefore one or both of you would be wise to consider contributing enough to a pension to let you avoid higher rate tax.

I emphasise "consider": it's an attractive idea if one of you might be leaving the labour force for a while on parental duties - build up a bit of pension now while a 40% tax rebate is available, so that you needn't worry about pensions while you're off the labour market. It might also be attractive for your husband if he has had many years without making pension contributions.

It might also be wise to establish what your annual outgoings are and then to ensure that your emergency cash fund is, say, three months outgoings (or six when you have children).

ruinen

So if i've got it correct:
£120k deposit on house. £380k mortgage @ 2.24%. Cash £20k + £110k. £110k household income.

So assuming you are both now in higher rate tax rate, you'll be hard to earn 2.24% net of tax. So clearing some of the mortgage debt might be good.

Husband at 36 with no pension. Maybe stick £15k in an low cost tracker fund, within an ISA. Treat that as retirement/pension money (but you have it available in emergencies).

Maybe boost your emergency cash by another £15k, then that leaves £80K to overpay on mortgage or use as bigger deposit when you remortgage in 2 years.

To be honest, with a £110k household income and final salary pensions, unless you are massive over-consumers it probably doesn't matter greatly what you do with the £110k. You should be good.