What to do with £150k inheritance?

Woodsie2021

Hello All,

As per the title, I have recently received an inheritance and it’s the first time I have ever had this sort of money. 

There are also some shares not in an ISA which I will keep as the dividends are good, but below the rate at which I start paying tax on them. Also, there would be no CGT implications (at the moment) should I decide to sell later.

I already have cash savings of £10k (which I shall retain) and a main pension pot of ~£130k with 2 smaller pension pots from previous employers of approx. £2k each.

I have a small credit card balance of £2k, but as this is on 0% I intend to continue to pay this off monthly.

My initial thoughts are:

1. Invest £50k net (£62.5k gross) into a pension scheme and consolidate the two small pots – this is the maximum I can contribute due to reduced earnings and existing contributions over the last 2 years. My reasoning is that this is tax efficient and if necessary I can draw down 25% at age 55 onwards (I am 50). Also, it boosts retirement income;

2. Invest £20k into a S&S ISA (funds so Vanguard or similar) – not sure if it’s best to invest in a lump sum or drip in over the rest of the financial year? I’m not totally averse to risk, but always like to minimize it where I can;

3. Add £10k to easy access cash savings for emergency/rainy day fund;

4. Pay £50k into premium bonds, with the expectation that it should generate some income, but mainly to keep the cash safe – in future years I would look to invest this in a S&S ISA. The loss of guaranteed interest looks to be minimal given the savings rates available at the moment;

5. I need to replace my car so I have allocated a maximum £10k for that;

6. The balance of the £10k I’m not sure about – maybe fixed rate or notice accounts as I don’t anticipate requiring the money at short notice given the emergency fund that I already have.

I have a 25% shared ownership flat (1 bed, no mortgage) and no desire to move anytime soon and even less desire for a mortgage. There doesn’t seem to be much advantage to staircasing as it would cost £100k and take roughly 25 years for the purchase to exceed the rent saved (even at maximum increases which so far the increases have been inflationary only) and unless property prices go skyward, the capital appreciation is unlikely to be that significant as the market for flats locally is not not that good.

My aim is simply to ensure a decent level of income come (possibly early) retirement.

Any comments or thoughts would be much appreciated.

maxsteam

Your plans sound good although personally I would be inclined to pay off the credit card, even though it's 0%.

Albermarle

 Invest £50k net (£62.5k gross) into a pension scheme

Just to be clear to do this you need to be earning at least £62.5K pa after your normal regular pension contributions ( we have a lot of posters who are confused on this point )

Invest £20k into a S&S ISA (funds so Vanguard or similar) – not sure if it’s best to invest in a lump sum or drip in over the rest of the financial year? I’m not totally averse to risk, but always like to minimize it where I can;

Statistically a lump sum is better , but drip feeding can help nervous investors . A compromise would be £10K now and then two £5K lots later .

Risk is part of investing , it is where the  returns come from . Taking too little risk/playing too safe  can in itself be risky .

Woodsie2021

Albermarle said:

 Invest £50k net (£62.5k gross) into a pension scheme

Just to be clear to do this you need to be earning at least £62.5K pa after your normal regular pension contributions ( we have a lot of posters who are confused on this point )

Ah, that changes things - I thought you could add up the total earnings for 3 years and contribute the difference between that and the total contributions already made (I've only contributed a small percentage of salary to pension schemes over the years and employers even less). It's something I need to speak to the pension provider about, but worse case scenario I'll filter it in monthly.

dunstonh

 I thought you could add up the total earnings for 3 years and contribute the difference between that and the total contributions already made (I've only contributed a small percentage of salary to pension schemes over the years and employers even less). 

You are referring to carry forward but you are not describing it correctly.  You can use the unused allowance of the previous 3 years after fully utilising the current year but you must have the earnings in the current year to cover the whole contribution or it be an employer contribution (such as if you are company director of own company).

 It's something I need to speak to the pension provider about, but worse case scenario I'll filter it in monthly.

Pension providers wont give you any guidance on this as they will refer you to an IFA.

I have a small credit card balance of £2k, but as this is on 0% I intend to continue to pay this off monthly.

If you borrowing in excess of 50% of your credit limit then you are doing your credit record some damage.  Not critical but more of a negative influence.

MX5huggy

I think you need to explore the buying of the flat a bit more. Especially as you don’t have to buy all of it. How much is the rent how much would you have to pay? If you’re paying £4000 a year in rent then the your investments have to beat 4% not impossible. But that’s not taking into account possible growth in property value or increasing rents. What’s the longer term plan stay in the flat forever or move? Pay rent when drawing pension?

Woodsie2021

MX5huggy said:

I think you need to explore the buying of the flat a bit more. Especially as you don’t have to buy all of it. How much is the rent how much would you have to pay? If you’re paying £4000 a year in rent then the your investments have to beat 4% not impossible. But that’s not taking into account possible growth in property value or increasing rents. What’s the longer term plan stay in the flat forever or move? Pay rent when drawing pension?

The rent is currently £200 per month + service charge so not excessive (obviously the service charge won't change whether I buy or not).
The rent can only increase by inflation (capped at 4.9%), so at the moment this isn't an issue.

I've no problem paying rent in retirement. According to HMRC I am due a full flat rate pension (assuming things don't change) and the income from the private pensions/other savings should be more than enough to pay the rent and expenses.

Long term I plan to stay here unless I inherit a property from parent (not guaranteed if care is required so not counting on it).

Albermarle

Woodsie2021 said:

Albermarle said:

 Invest £50k net (£62.5k gross) into a pension scheme

Just to be clear to do this you need to be earning at least £62.5K pa after your normal regular pension contributions ( we have a lot of posters who are confused on this point )

Ah, that changes things - I thought you could add up the total earnings for 3 years and contribute the difference between that and the total contributions already made (I've only contributed a small percentage of salary to pension schemes over the years and employers even less). It's something I need to speak to the pension provider about, but worse case scenario I'll filter it in monthly.

Nearly everybody has the wrong idea about this , so you are not alone .
Putting it in monthly makes no difference.

You need to take your expected gross salary in this tax year and you can add 80% of that minus any pension contributions already made .Then you can add that as a lump sum or in instalments.

Feel free to check your calculation on here if you like.

sevenhills

FTSE is down 2% today, not sure what the cause was, but a good to buy tomorrow?

Woodsie2021

What I meant by monthly was:
Gross Salary (Monthly) £2,000
Contribution to Auto Enrolled Pension: £74
Employer Contribution: £45
Regular Payment to Personal Pension (Gross): £200

Left available for pension: £1681
Nett Payment: £1345 (in round numbers)

As my income can vary monthly, it would be easier to simply transfer in the required amount each month - I don't want to assume what I may earn this year!