Inheritance question

MM2002

Hi All,
I!!!8217;m sure this has been asked in a round about way many times on here(have tried the search with no luck!)
My parents sadly passed away last year and on selling their house my share is £110k.

I immediately paid off car loans and c.cards(were all 0% cards) leaving me with 80k.

I have a £120k mortgage just fixed on a 10 year deal(2.39%) on my house valued at £440k. I intend to try and overpay 5% a year leaving me mortgage free(more or less) at the end.
I also have a BTL valued at £350k with £198k int.only mortgage with rental income of £1250 pcm
I!!!8217;m married with 2 teenagers, and before paying off the debts had no spare cash at the end of each month, so now I!!!8217;m £500 happier each month.

My question is how would you look to invest 70k for best return? It!!!8217;s currently in my account earning 0.1%!!!

Was considering looking at a flat or 2 for BTL(could get £240k BTL Mortgage) that would pay an income and also possibly pass on to the kids to get them on the ladder.

My pension advisor and accountant seem to think a BTL would be good, but I have real trouble trusting people I pay for financial advice, thinking they may all be looking after themselves.

Also my plan was to sell the BTL on retirement and use the equity as my pension but advisors have told me to keep it and use the income as the pension as the CGT would be so much to lose!

Or.... would I be better looking at other investments I.e stocks/shares etc?
Looking forward to some truly unbiased advice from all you good MSE people!

kidmugsy

Do you understand the change in taxation of BTL income that is being phased in starting this tax year i.e. 17/18? Apart from anything else it might give you a whale of an incentive to contribute more than usual to a pension.

eskbanker

MadMatt2002 wrote: »

My pension advisor and accountant seem to think a BTL would be good, but I have real trouble trusting people I pay for financial advice, thinking they may all be looking after themselves.

How would a pension advisor or an accountant gain from you buying a BTL?

MadMatt2002 wrote: »

Also my plan was to sell the BTL on retirement and use the equity as my pension but advisors have told me to keep it and use the income as the pension as the CGT would be so much to lose!

I find it hard to believe that a pension advisor would recommend one or more BTLs as a pension substitute unless you already had one or more conventional pensions already in place, given all the tax pros and cons, perhaps it would be worth consulting with an IFA or two for broader advice? In your shoes I'd certainly look to be diversifying wealth away from a small number of properties so other investments (inside or outside a pension wrapper) would seem sensible to me....

jimjames

MadMatt2002 wrote: »

My pension advisor and accountant seem to think a BTL would be good, but I have real trouble trusting people I pay for financial advice, thinking they may all be looking after themselves.

If they're suggesting BTL then it doesn't sound like they're IFAs, what exactly are their qualifications to give you advice? You're right to be wary but as above I can't see what they'd gain.

MadMatt2002 wrote: »

Or.... would I be better looking at other investments I.e stocks/shares etc?
Looking forward to some truly unbiased advice from all you good MSE people!

If you currently have no investments or pension then that definitely looks like something you should investigate. Otherwise you have all your eggs in one basket with property and nothing else

traineepensioner

Hi MadMatt2000, First of all, sorry for your loss.

Do you have any savings? It might be useful to have an emergency cash fund before considering extra debt to fund an additional BLT (or two?). Do you have adequate pension arrangements? Do you have any other investments such as stocks & shares or bonds?

As mentioned earlier, the BLT market is changing and might not produce the income you have come to expect. Once you have a cash reserve it could be worthwhile diversifying any spare cash into other investments.

eskbanker

traineepensioner wrote: »

It might be useful to have an emergency cash fund before considering extra debt to fund an additional BLT (or two?).

A couple of sandwiches shouldn't set OP back too much....

MM2002

Hi all,
Firstly, thank you for your replies.

I am 45 yrs old, and have about £100k in my managed pension fund. Am in full time employment with a large company that has a pretty good pension scheme and am earning 45k pa. My better half is self employed so no pension and about 15k pa income.
The plan was to sell the BTL (in 20 years)and have a relatively worry free retirement from (hopefully) about the age of 65, but as noted in my OP have been advised agains this, due to CGT.

I have some shares worth about 1k, and total balances including savings total about 98k, so looking to invest 80k, keeping 18k as a buffer.

I know all about the changes in BTL taxation and am budgeting accordingly, but the profits still massively outweigh the costs(£315 mortgage £1200 rent income) and totally hear your advise on !!!8216;eggs in one basket!!!8217; and as such am wary about this, but thinking yield plus helping the kids when they look to move out(would expect about 5-10 years time) a couple of flats may tick boxes?

I have always been with HSBC and had no issues or problems over the years, but money is in their !!!8216;premier!!!8217; account giving few benefits imo and low interest.

Thanks again for your replies. All very interesting!

MM

MM2002

With this added info, any additional advice guys?

AlanP_2

Contributing to a pension for your wife would be my starting point and benefit from the HMRC topup.

She could put in her £15k * 80% = £12k this year which HMRC would add £3k to and the same for a few years if you can afford it.

Considering she will be paying about £700 a year in Income Tax a £3k "gift" from HMRC seems like a good deal to me.

I think you need to carefully set out your OBJECTIVES - what do you want the money to do for you / your family?

That should help with narrowing down the options.

Radiantsoul

I think you have £158k of equity(350-192) in your existing BTL. You must have a mortgage of around 2% to get a mortgage payment of £320 per month. So asume no void periods or costs and no price increase you get about £10.5k per year or a yield of 6%. Plus whatever increase in property prices there are.

The risk is if you remortgage at 5% the yield drops to 3%. Or if the property prices fall. Or if the tenants trash the place. Personally I feel dealing with tenants is more hard work than I can be bothered with.

I suspect BTL looks pretty good to you as you have a low mortgage rate and property prices have gone up and they may not do so in the future.

If it were me I would probably open a S&S ISA, you can put £20k in this year and £20k after the new tax year. I might be tempted to go on a nice holiday as well!

DiggerUK

The inheritance will be a bittersweet experience, hope you are settling down.

Getting rid of the mortgage on Digger Mansions was the finest decision we ever took. Get rid of the mortgage ASAP. You seem to have a good plan, stick to it.

No recommendation from me to pursue the BTL plan. If I can persuade you against the plan in any way, then make a list of all the downsides. Some have been mentioned already. I have to add that I believe you have made your mind up before coming here.

I would urge you to look outside of pension saving plans for retirement. As things stand you have the money locked away for another ten years. There are plenty of options for retirement savings that give you more flexibility.

You also mention 18k as a rainy day fund. With the household income good, do you need that much, or even any at all. Interest rates are still low, so a loan in emergencies would not be a danger. If things change then build a fund.

In the here and now put the cash somewhere safe like NS&I. That will give you time to sort out what to do..._