Buy house outright or keep Shares ???

tbs1983

Hi all,

I've Been fortunate to recently inherit approx £50k in cash, and £100k in Shares (all Blue Chip FTSE100).

I currently owe £73k on my mortgage which has 24 years still to run (only taken out last year).
The house is worth approx £100k

I would like to sell the house I live in, and pay off the mortgage which would leave me with approx £20k
to add to my inheritence. This would leave me with £70k cash plus £100k Shares.

I would then like to buy a bigger house worth approx £150k, and use some or all of my £70k cash as a deposit.
I would like some advice as to whether you think I should sell some (or all) of my shares to buy the
new house outright without any mortgage, or should I keep the shares for Growth and Dividend and take out a mortgage for approx £80k.

I am 32 years old and earn approx £28k annually from my work and could comfortably afford an £80k mortgage over 20-25 years, keeping my shares intact, but the thought of being mortgage free is very appealing

Luckyinlife

Personally if it was me i wouldn't get a mortgage for many reasons

Even if you get the best rate youll be still paying interest on something you don't really have to.

With a wage of 28k you could easily save more than what you put into the house over a 20 year time frame

edinburgher

I'd sell the shares, you'll be liable to pay tax on the dividends as well and it will take you years to get them all into ISAs.

In addition, while you have been left a very generous inheritance, you are not your benefactor. What has worked for them may not suit you and investing in individual shares can be high maintenance and more costly than some of the alternatives. Fine if this interests you, but very dull if not. It's not as simple as inherit pile of shares, receive dividends, do nothing for the rest of your life

With no mortgage at 28, you would be free to plough huge amounts of money into tax sheltered investments of your choosing (and have a lot of fun along the way).

Enjoy making your mind up, no rush

midnight_child

The safe/sensible option is to sell the shares and not worry as you own your house outright. The more risky/brave option is to keep the shares and get the mortgage.


The reason for selecting the risky option would be that with a 70K deposit you will have a be able to access the better rates. There is a good chance that your dividends would exceed this amount (depending on what exactly you have). There is however the chance that their profits could drop in future and they reduce or stop paying dividends, or the companies could go bust and this would mean shares are worthless.


The govt has recently changed the rules on dividends, which starts in April 2016. The first £5000 outside ISA protection will be tax free, with anything over this at 7.5% for basic rate tax payers. With 100K in shares its highly probable that you would not hit the threshold (there are not many FTSE100 paying over 5% dividends). You would want as Ed says move them over time into ISA as this will protect them from tax of the dividends increase over time.


Don't know much about inheritance tax or CGT, but do you know if you'd need to pay anything if you sold the shares?

MC


Edit: It would be a good idea speak to a financial adviser if you seriously considered keeping the shares as that is a large amount and you could potentially make big losses.

tbs1983

Thanks for your replies.

I think the mortgage free option is looking favorable at present.
It certainly will free up a lot more cash each month which I can split between saving and living a better life.

Like you say, no rush, plenty of time to consider my options.
My current house is going on the market in the next few weeks.

tbs1983

I think all of the inheritance tax etc has been paid already MC, but until everything is finalised and comes through I'm not 100% sure. Will be worth me finding out for sure before I go selling anything.

edinburgher

Have a drink to remember the lovely person who has singlehandedly freed you from the need to worry about debt at the tender age of 28 :beer:

It's like a lottery win, enough to change your life in a meaningful way forever.

G_M

You will not be liable for inheritance tax. That will be paid by the estate before you receive your bequest. If your bequest is a fixed amount (ie the will states: £50K plus the named shares) then that is what you'll get. If the will states you get 'the residue', or '50% of the residue', then the amount you get will depend on what is left in the estate after tax and other expenses are paid.

Personally, I'd keep some of the investments, and cash, and get a mortgage. Mortgage rates are low at present and if they start to rise you can always reduce/pay off your mortgage later. Meanwhile you can spread your money around various savings/investment options, plus of course move it into ISAs over time.