Having a windfall of £100K - Best use for early retirement plans?

tuppleextra

Not sure this is the right forum section:

I will soon have a windfall of £100k (after tax) and considering my options on how best to invest/use it.

My main goal is to retire as soon as possible and (although late) trying to make stops towards this.

Background: I'm 38yo, currently have:

- £88K in Pension

- £113K in Stocks and Shares ISA

- £4K in Crypto 

- £15K in Current Accounts

I earn between £80K-90K a year with potentially yearly windfalls of the same amount above. (It may vary because they are RSU grants and therefore based on share price, tax changes and USD -> GBP rates).

Only debt I have is a shared mortgage of about £225K @ 1.65% fixed for the next two years.

The options I have collated so far are one or some of the following:

- Pay off more of the mortgage but at 1.65% I'm not sure if that's the best use

- Buy a property with the intention to let

- Add to my SIPP

- Invest in ETFs with a stocks and shares account (subject to capital gains tax)

- Gamble some of it on crypto

- Invest in an early stage startup

I'm leaning towards buying a property to let but will likely need to wait a bit longer to build up the funds to make a deposit and the costs that come with it or withdraw money from my ISA.

Are there any options I've missed? 

1980ds

I’m far off from being any expert but on the face of it if you’re looking to retire early your pension looks light given current earnings.  Put as much as poss into the pension and benefit from 40% tax. 

Just out of interest when you say retire early, what are you thinking?

mark55man

Make use of your tax which means pension - but pension can't be touched until 55 and possibly later as you are quite young.  58 is not really retiring early, therefore you will need some money in ISAs as well as SIPPs (different mechanisms for holding the same investments).  You will need a reasonably aggressive strategy, unless ASAP is in the next 5 years - so you need to choose a target date and work towards that.

There are many threads about BTL vs pension investment - those against BTL look at the tax disadvantages, the amount of work required especially in retirement- those for BTL tend to look at "property never failed".  This board is not strongly for BTL.  However, the most important thing is to read around the subject so you are happy both with your strategy for growth, but also to understand the mechanics of drawdown and how much your pot has to be to sustain your required lifestyle

 

Dazed_and_C0nfused

I'm leaning towards buying a property to let but will likely need to wait a bit longer to build up the funds to make a deposit and the costs that come with it or withdraw money from my ISA.

As a 40/41/45/46% taxpayer you should ensure you are fully aware of the tax regime for loans used to purchase residential property.

What you might see as a loss or breaking even on the BTL could well be a profit in HMRC's eyes.

tacpot12

I would recommend using the money to pay the maximum that you are allowed to pay into your pension. You might be able to pay £80K, but you will need to use the carry-forward rule to do so. You will get tax relief on the amount, so the total paid into your pension will be £100K. Use the rest to pay to pay off your mortgage. 1.65% doesn't sound like a lot of interest, but compounded over the life of a large mortgage it is enough to be worthwhile paying off. 

In future years, max out the Pension (£40K) and S&S ISA(£20K) and split the rest between Premium Bonds and Mortgage.

sheslookinhot

mark55man said:

Make use of your tax which means pension - but pension can't be touched until 55 and possibly later as you are quite young.  58 is not really retiring early, therefore you will need some money in ISAs as well as SIPPs (different mechanisms for holding the same investments).  You will need a reasonably aggressive strategy, unless ASAP is in the next 5 years - so you need to choose a target date and work towards that.

Why is retiring at 58 “not really retiring early” ?

Surely any retirement before Normal Retirement Age is retiring early.

atush

Pay off high interest debt, ie non mtg first.  Set aside an emergency fund, if you dont have one of 3-12 months outgoings.

After this fill your pensions and isas for the year.

Any left?  Non isa S&S savings, of if 20K or less set aside in cash to put into a S&S isa in April.

Forget BTL, to many taxes now.

Secret2ndAccount

You don't say what annual income you require, now or in retirement. You should be looking for a pot size which is 35 x your required income. You say you want to get there as soon as possible. The only way to do that is to gamble at high risk / high return. The downside of that is that you might lose half or all of your pot, postponing your retirement for many years - not what you were aiming for. If you only need 30k/yr in retirement, that equates to a pot of  £1 million. You can be there in 5-10 years by just preserving your wealth with low risk investments. That seems like the sensible course to me, since, in the worst case, you can still retire in 10 yrs. 

You should put 40k/yr into your pension. That's the maximum which is subject to tax relief (might be able to put in a bit more this year as you can backdate 3 yrs). Use that, and your ISA, for your highest risk investments as there will be no CGT to pay. You wouldn't want to put all your money into pensions because you can't access it until you are 58. However, you are limited to only a moderate part of your income going in anyway, so it all works well. Keep your lower growth investments outside the wrappers. When you retire, you can dispose of them year by year, together with anything that has made a loss, to stay under your CGT threshold. That threshold might drop sharply in the near future - government is looking closely at it. Prior to retirement, you can still (under legislation as it is now) sell investments each April to realise capital gains, then buy something else (not the same thing back again) with that cash after April 6th. Use up your CGT allowance each year, to reduce the liability to tax in later years. Much easier to do that with shares / funds than with a house.

Don't forget to keep a rainy day fund in cash or near cash at all times.

tuppleextra

Thanks for all the replies!
Looks like key points are:
- Aim for 35x required annual income (is that before or after tax @Secret2ndAccount?)
- Be aware of tax issues as a high income earner if considering the BTL route
- Take advantage of the 3 year carry forward rule to be able to add more money to my pension pot. Other wise it is a maximum of £40K
- Consider paying down your mortgage, even at 1.65%

1980ds said:

Just out of interest when you say retire early, what are you thinking?

I think retire might be the wrong word and wish to work less/in something less demanding towards the later years so want to take advantage of any fortunate windfalls I do get.

tuppleextra

Follow up question on SIPP allowance, is the £40K limit also including amounts from the salary sacrifice at work?

cfw1994

Can’t believe no-one has asked for a job with you: those RSUs exceed most people’s salary for 1-4 years - gissa job!
Guessing you work in technology, perhaps....my only caution (after a couple of decades in it!) would be the it is rare for those things to happen for many years....if your role is so senior that it does, I’d consider getting professional advice

As a 40% taxpayer, some good advice above......stuff the pension....and if you may wish to step down prior to 55 (or 10 years before your SPA), fill your ISAs each year (S&S).  

BTL?  Not sure....your role sounds like it would likely mean being too busy to manage, so likely to need a managing agent, & my guess is that would suck profits.  If there is an area you particularly like for a break, ideally within a short distance, perhaps look for a holiday let you can get use from regularly.