Thoughts on how to invest inheritance?

BrockStoker

My mum passed away a few months back leaving me a house (which will be sold) and total estate valued at £1M after liabilities, but before IHT, which is expected to be £300K. It would not have been such a big IHT hit, but my mum had paid (£200K) for the house I now live in with my wife, which was 7 years ago. About 9 months before the gift would have been ignored for tax purposes.



That gives me around 700K to invest, but I wonder if it might be possible to put some the proceeds (around 350K) from the estate into a trust in order to avoid some IHT?


Since I'm semi-retired/self employed/unemployed (age 48) and our only income is 1K/month from a £341K (current value) portfolio of (risky funds concentrated mainly in biotech, Japan small cap, tech, and energy/oil) funds which I hold in a trust, we struggle to live on that, so I'd like to have the trust in my wife's name and have it pay some extra income, perhaps another few hundred PM.


The only problem here is that my wife is disabled, and has her NI contributions paid for her, so I wonder if those payments might be stopped?


The remainder of the estate, about 350K, will I think be mostly invested in Vanguard's balanced "world" fund (I forget the correct name - vwrl perhaps?), a property fund or funds(to a value of about 150 or 200k)/some stocks I'm interested in (to a value of 25-30k) all held within a S&S ISA, short-medium term notice cash bonds, and an emergency fund.



Apart from that I have another ~£150K portfolio with Marlborough fund managers invested in Marlborough Multi Cap Income and Special Situations as well as a small (23k I think) NI pension fund which has not been paid into for decades. We have no significant debts.


I have a well rehearsed strategy for my "risky" portfolio (search my previous posts), and with the possibility of further falls in equity markets on the horizon I am in a situation where I can possibly pick up some bargains as the money from the estate gets invested, but I'm wondering how best to do this.



I don't really want to pump more money into one platform, but keep my eggs in more baskets instead, so I have opened up a S&S ISA with I-web, and will try to get at least 20k paid in, but looks like it will be next tax year now. Could I also set up a SIPP so that I can invest 40k in the next year?


Other than that, is there a faster way to get more money invested in tax efficient wrappers?


I'm also still left with the problem of having a large portfolio of risky funds, which I will want to top up if equities make a large move down, but at the same time I don't want to put any more funds into the one platform. I guess the only answer is to set up another account on another platform?



I am planning to talk to an advisor in the next few days, but would like to have better idea if my ideas sound sensible before that, if anyone has any thoughts on the subject.

fun4everyone

Firstly I am sorry to hear about your loss BrockStoker.

I have read your posts in the past and enjoy learning about your strategy....I like to use higher risk active funds in my portfolio also. That said managing £1m is a bit different to managing £341k and so I think professional advice is good in this situation (particularly around the area of tax). You will be able to judge how good the advice is for yourself.

If you can afford it you absolutely have to maximise this years ISA allowance before it vanishes - the comment "have opened up a S&S ISA with I-web, and will try to get at least 20k paid in, but looks like it will be next tax year now" makes it sound like you have not used this years allocation yet. You should also try and use your capital gains allowance for this tax year if you have unwrapped investments. Sell a fund showing gains and buy a very similar (but different) fund to do this. Maximising a SIPP is also a good idea imo provided you and your wife are ok with not accessing the money for 7 years. Aside from that I will have to leave it to other more knowledgeable types on here to give some pointers. Spreading around platforms is also for the best imo.

BrockStoker

Thank you for your reply fun4everyone. Appreciate the input.


Unfortunately I don't have any cash to spare, and the solicitor estimates 4-6 weeks before some of the funds from the estate might be available to me. The solicitor has been doing her best to speed up the process (also since fees on large estates are going up soon) but it looks like it will be too late for this year.



All my investments are in wrappers as far as I know, but I will double check. Thanks for the tip.


We shouldn't need any large sums in the foreseeable future, although I may keep 30-40k aside for building work on our property that we are considering doing.



Also considering buying into a bond fund rather than holding the Vanguard fund (at least to begin with), and should there be a further market draw-down, bonds could then be swapped for equities. I'm unsure which bonds/fund though. Long dated government bonds perhaps?

fun4everyone

BrockStoker wrote: »

Also considering buying into a bond fund rather than holding the Vanguard fund (at least to begin with), and should there be a further market draw-down, bonds could then be swapped for equities. I'm unsure which bonds/fund though. Long dated government bonds perhaps?

I'm no expert but if my thinking is correct then the risk on long dated bonds is that they at the mercy of future inflation/interest rate movements. Genuine risk there for not great returns. Short dated UK government bonds are about as safe as they come but give really awful returns?

My own personal tactic (and this might not be suitable for your situation) is to use regular savers for my cash/no risk part of my portfolio. Used to be current accounts as well but that is at an end now. I personally have 10+ of these accounts all safe as you come and all returning between 2% to 5%. It's a bit of work, but with two of you you could easily get a lot of money in there. Marcus at 1.5% for the excess - are long dated bonds carrying risk really much better? You could be putting approx £7000 per month away at 2%+ if you both work at regular savers and have £85,000 in Marcus.

You could look at p2p sites if you like to take risk but imo the returns you actually end up with on them do not equal the risks. You can take advantage of all the sign up offers on the likes of ratesetter/growth street/kufflink twice though and get very nice returns on small amounts. Another option might be corporate bonds/strategic active bond funds. I do not know much about them.

Linton

For £700K new money I think you would be foolish not to pay for professional advice. The normal recommendations such as max-out ISAs and pensions would take far too long.


It would seem you want the money to provide a sustainable reasonable standard of living for yourself and your wife. In theory you should have enough to live relatively comfortably for the rest of your days. But managing about £1M, including your current investments, to provide a sustainable income whilst minimising tax is not simple. This is why I think you should take professional advice - the particular investments you should choose are very much a secondary concern.

AlanP_2

Not sure pension is a realistic option given your employment / income situation as your contributions are limited to "relevant earnings" which for most of us means earned income.

elephantrosie

i couldnt find your written strategy on risky portfolio management. could someone guide me please?

BrockStoker

fun4everyone wrote: »

I'm no expert but if my thinking is correct then the risk on long dated bonds is that they at the mercy of future inflation/interest rate movements. Genuine risk there for not great returns. Short dated UK government bonds are about as safe as they come but give really awful returns?

My own personal tactic (and this might not be suitable for your situation) is to use regular savers for my cash/no risk part of my portfolio. Used to be current accounts as well but that is at an end now. I personally have 10+ of these accounts all safe as you come and all returning between 2% to 5%. It's a bit of work, but with two of you you could easily get a lot of money in there. Marcus at 1.5% for the excess - are long dated bonds carrying risk really much better? You could be putting approx £7000 per month away at 2%+ if you both work at regular savers and have £85,000 in Marcus.

You could look at p2p sites if you like to take risk but imo the returns you actually end up with on them do not equal the risks. You can take advantage of all the sign up offers on the likes of ratesetter/growth street/kufflink twice though and get very nice returns on small amounts. Another option might be corporate bonds/strategic active bond funds. I do not know much about them.

Thanks again for your thoughts fun4everyone.


I'll definitely have to look into bonds some more as it's an area where my knowledge is very limited. It is mainly their sensitivity to rates, and the current interest rate outlook which has put me off bothering with bonds so far.



I'm not too keen on spreading my money across many accounts, and would prefer to keep things simple, although I don't want to miss out totally, so I think a few of the better rate saving accounts is likely what I'll go with.


I had a look at Ratesetter the other night, and also came to the same conclusion, that the risk was not worth the gain. I'd probably be tempted if I only had ~£100 to invest, but the attractive rates are only on the first £100, so not of much interest (if you'll excuse the pun) to me.

BrockStoker

Linton wrote: »

For £700K new money I think you would be foolish not to pay for professional advice. The normal recommendations such as max-out ISAs and pensions would take far too long.

Thank you Linton. I hope to do so in the next few days.

Linton wrote: »

It would seem you want the money to provide a sustainable reasonable standard of living for yourself and your wife.

Yes, that is my main aim, along with significant growth, at least when times are good.

Linton wrote: »

In theory you should have enough to live relatively comfortably for the rest of your days. But managing about £1M, including your current investments, to provide a sustainable income whilst minimising tax is not simple. This is why I think you should take professional advice - the particular investments you should choose are very much a secondary concern.

Thanks again Linton. Yes, the more I look into it the more it becomes clear that this level of assets is not going to be as straightforward to manage as a smaller portfolio.



It's a little daunting right now, but I'm glad to have had a little bit of practice before hand, and thankful for all the valuable contributions people such as yourself have made to this forum, without which I'd be completely lost. :T

BrockStoker

AlanP wrote: »

Not sure pension is a realistic option given your employment / income situation as your contributions are limited to "relevant earnings" which for most of us means earned income.

Thanks Alan. A shame it's a dead end for me, but it's also another distraction out of the way.

BrockStoker

elephantrosie wrote: »

i couldnt find your written strategy on risky portfolio management. could someone guide me please?

Sure...



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