Thoughts on how to invest inheritance?

bowlhead99

BrockStoker wrote: »

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.

The limit for pension contributions for someone with under £3600 of earned (employment or self employment) income per year is £3600 per year (put in £2880 and the pension provider is allowed to gross it up for basic rate tax for you even if you have not paid income tax on the earnings in the first place). If you and wife don't use that allowance for the current year, you lose it.

Likewise if you don't use this year's £20k ISA allowance and your wife's £20k ISA allowance, you will effectively lose it because you will easily be already maxing out your pension and ISA allowances for 2019/20, 20/22, 21/22 etc etc for the foreseeable future with the new £700k you have to deploy.

Being able to use this year's allowances and thereby wrapping up that (£46k+) away from the tax man an entire decade earlier than you'd otherwise be able to, is something that could be very lucrative because a decade's worth of tax saving (the income tax on the resulting investment income and CGT on the resulting gains, for ten years or more) is cumulatively a fair chunk of money.

So, use current year allowances is a key thing to do if you can. If you don't have the free cash or liquid unwrapped investments to finance doing that - because existing investments are all wrapped up from the tax man already and you have very modest cash savings and no emergency fund - one remaining option is to take out a loan or small mortgage on your property.

If your credit is reasonable and you have had recent self employment and a reasonable level of investment income you may be able to borrow. While you could borrow over four or five years or more to keep monthly repayments down and 'within your means' from lender perspective, you could in fact pay it back in a couple of months once the solicitor comes through, avoiding most of the interest.

Might sound like a faff, but a couple of months borrowing costs on £10k is likely much lower than ten years of taxes on the investment income and capital gains generated from £10k. For example the total return in ten or eleven years on £10k could be another £10k, made up of income and gains which are both taxable. The tax bill avoided could therefore be £1-2k, while two months borrowing costs on £10k to finance an ISA or pension investment might be more like £50-100.

BrockStoker

As a side note - I decided to take some profits from funds that have done well for me on Friday, namely Baillie Gifford Japanese Smaller Companies B Acc (about 15% of the total portfolio) and Artemis Global Energy R Acc (about 10% of the total portfolio), selling around half my holding in each case.



Baillie Gifford basically doubled my investment with them in 3 years, and it seemed an appropriate time to lock in some more profits (this is the second time), what with the dark cloud hanging over the region, and threatening to become a storm. A shame, because I still believe Japan has plenty more potential. However, I may jump back in if the market falls enough, so it's not all bad.



Artemis Global Energy hasn't been as good as Japan, but still a solid overall performer, and it's more a case of de-risking a bit as the outlook for oil becomes more uncertain.


Between them the sale will also generate around 47-48K cash, at a time when I don't think it's a bad thing to be holding cash. Could well be wrong of course, but still holding plenty of risky funds, including 22% of the portfolio's weight in Polar Capital Biotechnology currently.

BrockStoker

bowlhead99 wrote: »

The limit for pension contributions for someone with under £3600 of earned (employment or self employment) income per year is £3600 per year (put in £2880 and the pension provider is allowed to gross it up for basic rate tax for you even if you have not paid income tax on the earnings in the first place). If you and wife don't use that allowance for the current year, you lose it.

Likewise if you don't use this year's £20k ISA allowance and your wife's £20k ISA allowance, you will effectively lose it because you will easily be already maxing out your pension and ISA allowances for 2019/20, 20/22, 21/22 etc etc for the foreseeable future with the new £700k you have to deploy.

Being able to use this year's allowances and thereby wrapping up that (£46k+) away from the tax man an entire decade earlier than you'd otherwise be able to, is something that could be very lucrative because a decade's worth of tax saving (the income tax on the resulting investment income and CGT on the resulting gains, for ten years or more) is cumulatively a fair chunk of money.

So, use current year allowances is a key thing to do if you can. If you don't have the free cash or liquid unwrapped investments to finance doing that - because existing investments are all wrapped up from the tax man already and you have very modest cash savings and no emergency fund - one remaining option is to take out a loan or small mortgage on your property.

If your credit is reasonable and you have had recent self employment and a reasonable level of investment income you may be able to borrow. While you could borrow over four or five years or more to keep monthly repayments down and 'within your means' from lender perspective, you could in fact pay it back in a couple of months once the solicitor comes through, avoiding most of the interest.

Might sound like a faff, but a couple of months borrowing costs on £10k is likely much lower than ten years of taxes on the investment income and capital gains generated from £10k. For example the total return in ten or eleven years on £10k could be another £10k, made up of income and gains which are both taxable. The tax bill avoided could therefore be £1-2k, while two months borrowing costs on £10k to finance an ISA or pension investment might be more like £50-100.

Thank you bowlhead. What you say makes great sense. I suppose the next step is to check my credit rating?



I've never checked it before (or taken out a loan) but always tried to do things that would be good for my score, although I was late paying (by a day or two) on 2 or 3 monthly credit card payments in the past 6 months, which was mostly due to my own sloppiness.



I say "my own sloppiness", but it would be a lot easier if there was a set date every month (like I'm sure it used to be IIRC?), but Barclaycard change the payment due date every month now, and I'm sure it's something they do on purpose to generate more revenue. Sorry for the OT rant!


Anyway, thank you again bowlhead! :T

Alexland

Sorry for your loss BrockStoker,

My first and only personal loan was to use up our ISA allowances at the end of last tax year. We are ok this tax year but might need to do the same next tax year (or just grow the credit card 0% stooze pot) as my wife will be on maternity leave again. If used sensibly it can be a good way of smoothing tax wrapper contributions over a more rocky cashflow pattern.

I took it out with Zopa over 5 years to keep the repayment low but paid it back early within months with no penalty. TopCashBack's new customer sign-up bonus almost covered the cost. I then referred my wife for an unnecessary £1k loan, repaid early, for a further £50 each so overall we made a modest profit.

Ps have you considered moving your card payments onto direct debit to avoid missing the moving dates?

Alex

BrockStoker

Thank you for the kind words and ideas Alex.


I was hoping someone would chime in with some info about loans. That sounds very encouraging. I'll have a look at Zopa. What sort of rate could I expect/should I look for?



Of course I expect to pay it off quickly as you did, but I just want to be sure I end up with the right deal/loan.


Setting up a direct debit might not have worked too well for me in the past as (with a varying date) it could be hit or miss if I had enough cash in my account, but now that I have a large pot to play with I'll be able to keep more of a cash buffer, so it sounds like a better idea. Thanks for the suggestion!



Congratulations on the upcoming new arrival!



One more question if anyone can answer? My wife does not have an account with any financial institution, and it could take a while to set one up. If I set up a SIPP and S&S ISA for her, is there any reason I could not fund it (at least initially) from my account?


Also, would it be a bad idea to also have her accounts on I-web (where I will also have mine), or should I look for another provider/platform? I do want to keep multiple baskets for safety.

Alexland

In terms of interest rate Zopa offered me their published rate but it depends on their assessment of your credit history. They were efficient, accepted 'other' as a loan reason (using ISA allowances is not likely to be on the list) and I could repay early in adhoc lump sums avoiding most of the daily interest and without any penalty.

If your wife doesn't have a current account the quickest thing to do would probably be to add her to one of your accounts such that it becomes a joint account.

With that sort of money you certainly want to be using a few different unrelated platforms preferably with fixed fee (II, iWeb) or low capped fees for ETFs (Fidelity, AJ Bell or even HL). Still there is no harm in having a few matching accounts as you will each get the first £85k protected.

Baby is due in less than a month so starting to feel real!

Alex

BrockStoker

Thank you again Alex.



So I would HAVE TO make it so my bank account is a joint account? Paying from my own (non-joint) account directly into my wife's I-web account would not be acceptable?


The only (possible) problem might be my wife's ID. Basically, we previously were going to set up an account for her with my bank, but she has no "in-date" photo ID - only an expired passport - so we were not able to set up an account. I think that was the main problem, but my wife seems to think we might be able to resolve the problem by contacting BT and have them put her name on the monthly statement. Apart from that she just has her birth certificate, and our marriage certificate.


With regards to keeping the money split up on various platforms for safety, since we would have separate I-web accounts, would that not mean 85K + 85K protection? If so, then I think it makes sense to make my wife an account on I-web too - so far I like what I've seen from I-web (although the selection of funds available seems a little limited, but that shouldn't be a big problem) so it would be good if we could stick with that.


Best wishes to you and the wife for a smooth/hiccup free birth!



Another question, if anyone knows the answer - Would the fund selection for the SIPP be the same as that available in the S&S ISA, or more restricted?

Alexland

Yes lack of ID might be a problem but your bank should have some details on what they would accept so suggest you talk to them. All the investment platforms I know would require the contribution to come from a single or joint account with the same name to reduce the risk of money laundering.

https://www.iweb-sharedealing.co.uk/PDFs/Terms-and-Conditions.pdf

5 Opening an Account
5.5 You must provide details of a nominated bank account in your name or which you hold jointly with someone else that will be used to fund and receive amounts from your account in line with this agreement. If you have more than one account with us, we may use the same nominated bank account for each. All payments to or from your nominated bank account will be in Pounds Sterling.

If you each had iWeb accounts you would each get £85k protection so there's no harm using it but for the amount you are talking about you still might want to have accounts with several unrelated providers even if some go over the limit. iWeb have the same funds as my Halifax Share Dealing account and I did once ask their 'control' team to add a fund which took a few months. The fund and published materials would need to be compliant to the latest regulations and its ultimately their decision.

Although choice might be limited by platform you can generally make the same mainstream DIY investments in ISA and SIPP wrappers. If you want to know more google ISA or SIPP "qualifying investments"

Alex

BrockStoker

Thank you again Alex. That pretty much answers all my questions. I'll speak with my bank first thing Monday!

HarryFlatters

I'm no expert but have dealt with similar recently as an executor, are you sure this is correct ? The 200k lent to you is only payable at 20% = 40k Your 1m may will have a late fathers unused IHT giving 650k before IHT @40% and you may also gain main residence nil rate band relief ?




Its a difficult time, you have my sympathy