What to do with our inheritance?

jerryjal

My father in law recently passed away and unbeknown to us he had accumulated a large amount of savings. He was a US citizen, my wife is the sole heir and the amount is circa $1.6 million. 

This is made up of $300,000 of savings and the house sale and the rest is in bonds and shares with Vanguard in the USA, this has now been transferred in to my wife’s name. 

We will be liquidating the Vanguard stock and then plan to move around $1.45 million to the uk. 

Our current position is that we are both 48 years old with 12 year old twins and own our property that is valued at around £250,000 and the outstanding balance of the mortgage is around £40,000. 

We had recently been thinking of moving house as the walls have felt that they are closing in due to limited space and the kids getting older, obviously this will now be possible. 

Our initial thoughts are to allocate around £5-600,0000 to buy a new house in the area we currently live as this is the going rate for a 4 bedroom property with a drive and garage, the drive, garage and extra bedroom is something that we don’t currently have but would like to. 

We would then keep our current property and rent it out. 

We would then like to invest around £100,000 for each of our children, this would be a long term investment with a view to them receiving  the proceeds when they are around 22 to 24 years old. 

Stupidly neither of us has ever invested in a pension scheme so we would like to invest around £400,000 with a view to retiring in around 10 years, we have no idea how to invest the money so I guess a financial adviser is the answer. 

The rest will then be kept in easy access savings accounts to use for any unexpected bills and maybe a holiday or two.  

Does the above sound sensible or are we missing something?

Thanks in advance for the comments and suggestions. 

atush

First of all, why no pensions?  Hacve you opted out or are you self employed?  Open pensions immediately.

Then open 2x S&S isas for this year then 2 for next year.

Pay off mtg.
For the chidlren Jisas could be an option, but they can have access to this at age 18 (if they know about it lol).  you could use your S&S isas for this but would take a number of years to stash the funds there, and would leave you not sheltering yoru money from tax.  So i would invest in your name for the childrne and gift he money later, along with using their Jisa allowance annually.
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Keep a year or so of annual spending in easy access cahs and lock any other cash away for longer (for a better rate).  Dont keep too much cash as it will be eorded yearly by inflation (which is up).

jerryjal

atush said:

First of all, why no pensions?  Hacve you opted out or are you self employed?  Open pensions immediately.

Then open 2x S&S isas for this year then 2 for next year.

Pay off mtg.
For the chidlren Jisas could be an option, but they can have access to this at age 18 (if they know about it lol).  you could use your S&S isas for this but would take a number of years to stash the funds there, and would leave you not sheltering yoru money from tax.  So i would invest in your name for the childrne and gift he money later, along with using their Jisa allowance annually.
\
Keep a year or so of annual spending in easy access cahs and lock any other cash away for longer (for a better rate).  Dont keep too much cash as it will be eorded yearly by inflation (which is up).

Thank you for the reply, in regards to the lack of pension I have been self employed for nearly 30 years and have never really had the spare cash, I know that’s no excuse but that and ignorance/laziness is the best I can offer. 

The same really goes for my wife apart from the self employment part. 

What does the S&S stand for with the isas?

I’m guessing that we would be able to open pensions with a decent lump sum?

Albermarle

With this large amount of money and no experience in investing , it would make sense to pay for some professional advice and not rely on internet forums . You would be best to find a IFA ( independent financial advisor) rather than going to a bank or a wealth management company .

pjcox2005

As mentioned it may be worth getting advice.
One point I will mention though is the plan to keep your old property after buying a new home. Just to be clear there is extra stamp duty land tax ("SDLT") in these scenarios of 3%, so you new house would cost £38,000 of SDLT rather than £20,000 of SDLT if you sold your current home. May be the right investment decision, but I wouldn't taken it as granted given that cost, the additional tax (e.g. lower interest deductions if high rate tax payer) etc.

jerryjal

pjcox2005 said:

As mentioned it may be worth getting advice.
One point I will mention though is the plan to keep your old property after buying a new home. Just to be clear there is extra stamp duty land tax ("SDLT") in these scenarios of 3%, so you new house would cost £38,000 of SDLT rather than £20,000 of SDLT if you sold your current home. May be the right investment decision, but I wouldn't taken it as granted given that cost, the additional tax (e.g. lower interest deductions if high rate tax payer) etc.

Thanks for the heads up, mentioned that to SWMBO and she (and I) would rather keep our current property so I guess we'll just have to cough up the extra stamp duty.

AnotherJoe

We would then keep our current property and rent it out.

Just no . Dont do that.

On a £600k house, how long would it take to earn back, in profits, £18k just on the extra SDLT alone ? 3 or 4 years? And if you've never been a LL before theres a raft of complications and tax heading your way.

There is a reason so many landlords are selling up, namely that letting isn't the boondoggle it once was.

Put that money into a pension and it immediately becomes 22.5k. And you should have pensions, at the moment you are almost literally throwing money away by not having them.

Note that if you invest £100k each for the kids, it will have to be in your names to ensure they dont get it at age 18. That has additional CGT and other tax implications.

You need an IFA for the whole thing, not just investing £400k or £600k. And hopefully she will dissuade you from become a landlord as well.

steampowered

It sounds like this is a life changing opportunity for you, your FIL would be pleased your family is able to make the most of it.

You are not used to managing this sort of money so I think it would be money very well spent to get some advice from an IFA who knows what they are talking about. Alternatively you could take the time to research the different options available and cluing yourself up on investments.

AnotherJoe is spot on (yet again). Keeping your property would mean (i) converting £250k of Vanguard funds into a £250k buy-to-let and (ii) paying higher rate SDLT on the £600k property That is not a good idea.

You need to think sensibly about what to do with the money left over once you have used some of it to buy a new property and sold your current property. The main options are:

- Pensions - Likely to be the most tax efficient use of your money, given the tax relief you could claim. It sounds like you are really far behind where you should be in your pensions savings so that should be a priority. This is also an opportunity to make sure you are taking advantage of the maximum possible employer contributions (literally free money) you can possibly get from your employer on pension contributions.

- Stocks & Shares investments - It sounds like your father in law had the right idea by putting his money into Vanguard trackers, which is probably why he ended up with so much money! Do that. As much as possible through a stocks & shares ISA.

- Buy to let - This doesn't sound like a good option given the taxes you'd pay. Long term returns are inferior on average compared to stocks & shares investments. The main advantage of BTL is that it is easy to leverage using mortgage debt, but you aren't planning on doing that.

Gary1984

If you want to invest for the twins have you considered private schooling instead of conventional investments? 

MallyGirl

It sounds like an IFA is a good idea.
There are limits around how much you can get tax relief on in a pension - related to earnings plus capped at £40k so you can't just stick a large lump sum in without understanding the rules.
When you say self employed - is it a ltd company of which you are a director or is it truly self employed as this affects what you can put in a pension too.
There aren't any products that allow you to keep money on behalf of your children beyond 18 - you would be looking at something more like a trust. Is there a reason you don't want them to get it at 18? That is when they might go to uni / learn to drive.

jerryjal

Thank you for all of the comments, as you have all mentioned it is a life changing sum of money and something that we are still trying to digest. One thing for sure is that we will not be jumping head long in to something.
We will definitely seek the advice ao an IFA before doing anything.