What to do with my Inheritance

LexieLou

Hello Lovely People,

I need some advice, I've recently come into approx 100K in inhertiance

I earn approx £43,600k.
I've £3000 in the credit union 
£1400 in a old santander ISA - no idea of the interest (shocking I know)
I'm not married

I've just opened a fixed 1 year bond @ 4.55%, only 1K in it yet as I'm my bank has a restriction on how much you can transfer with a new payee set up.  I had planned to put the whole lot into 2 high interest savings accounts until I stumbled across tax and savings in the same sentence.  

I'm also not planning to buy a house for another 2 years, so want to keep this money safe

So do I bite the bullet and put my max ISA allowance in, then the rest in high interest savings and pay the tax?  As from what I've worked out, I will only pay 20% tax on what I earn?

Sorry for all the questions...

Thanks

LL xx

oz0707

Do you have a Lisa? Have you owned property before? No brainer to open one if that's what the funds are for

P1Fanatic

As above if your aim is to use it for purchasing your first home then LISA (Lifetime ISA) is a no brainer assuming you meet the criteria (must be your first house owned whether joint or on your own and max purchase price of £450k):

https://www.gov.uk/lifetime-isa

You can put in max £4k per tax year and govt gives you a 25% bonus (so your £4k is topped up to £5k each year). If you opened one now you can stick in the max and then another chunk on or after April 6th 2023. That £4k will count towards your total ISA allowance of £20k pa (so £16k allowance remaining).

If you don't end up using the LISA money for a house purchase then you won't be able to retrieve it until age 60 without incurring a 25% fee which negates the bonus paid plus a bit more)

As for the other £92k again if its solely for a house purchase then you want zero risk. Cash ISA's dont offer the best interest rates but are tax free. If you go with the LISA then max you can stick in is £16k now and £16k next April. Fixed rate savings accounts will offer better return and as a basic rate tax payer you will only be taxed on interest over £1k a year.

Robin9

What is your pension provision ?



PS Spend a little - that holiday

LexieLou

oz0707 said:

Do you have a Lisa? Have you owned property before? No brainer to open one if that's what the funds are for

I've owned a property before so as far as I'm aware I'm not entitled to use a LISA, plus I'm over 40

LexieLou

Robin9 said:

What is your pension provision ?



PS Spend a little - that holiday

12% employer contribution - so its pretty good 

LexieLou

P1Fanatic said:

As above if your aim is to use it for purchasing your first home then LISA (Lifetime ISA) is a no brainer assuming you meet the criteria (must be your first house owned whether joint or on your own and max purchase price of £450k):

https://www.gov.uk/lifetime-isa

You can put in max £4k per tax year and govt gives you a 25% bonus (so your £4k is topped up to £5k each year). If you opened one now you can stick in the max and then another chunk on or after April 6th 2023. That £4k will count towards your total ISA allowance of £20k pa (so £16k allowance remaining).

If you don't end up using the LISA money for a house purchase then you won't be able to retrieve it until age 60 without incurring a 25% fee which negates the bonus paid plus a bit more)

As for the other £92k again if its solely for a house purchase then you want zero risk. Cash ISA's dont offer the best interest rates but are tax free. If you go with the LISA then max you can stick in is £16k now and £16k next April. Fixed rate savings accounts will offer better return and as a basic rate tax payer you will only be taxed on interest over £1k a year.

LISA isn't an option for me as I've owned a house before

I did some sums last night (after I posted on the page) and based on an average savings rate of 4.8% (I'm assuming we get to 5% interest), I'm actually better off paying the tax on investing it all in a fixed rate than using an ISA for my max amount and the rest in a fixed rate savings account.  But I do need to consider the longer impact of saving with an ISA.

Thanks for your suggestions.  

LL xx

Albermarle

I did some sums last night (after I posted on the page) and based on an average savings rate of 4.8% (I'm assuming we get to 5% interest), I'm actually better off paying the tax on investing it all in a fixed rate than using an ISA for my max amount and the rest in a fixed rate savings account.  But I do need to consider the longer impact of saving with an ISA.

The calculation between using an ISA or not varies. Sometimes the gap between non ISA and ISA rates grows and then shrinks again. Some savings providers set the rates so it is even stevens.

Personally I would stick £20K into the ISA in a fixed rate (one or two year) as then you have not lost this allowance for the future. The rest to go into non ISA products.

P1Fanatic

LexieLou said:

Robin9 said:

What is your pension provision ?



PS Spend a little - that holiday

12% employer contribution - so its pretty good 

Is that the max they will contribute and matching your own employee contribution? Pension is the most tax efficient way to save due to tax relief - more so if you are a higher rate tax payer and your employer uses salary sacrifice (where approx every £50 of salary sacrificed gets you £100 into you pension). Depending on your current pension pot and age its definitely worth reviewing. Worth mentioning that my employer / pension provider lets me increase my pension contribution % whenever I want, but you can only decrease during April each year so yours might be similar in case you were thinking I can whack it up for say 6 months then drop it back down as needed.

Also you mentioned LISA is not for you for house purchase but if you are at or nearing annual pension limit then it can be a good 2nd pension option. I personally view mine as bridging some of the gap between personal pension age 57 (changing to 58) and state pension age 67 (changing to 68). If you are under 40 then best just to open a LISA even if you don't plan to use it straight away. At least you have the option then.

RobM99

Tricky. The £1400 in a 0.01% ISA (or whatever) must be upgraded. OK it won't earn a lot there, will it?! So can you upgrade/move/add to it (rates below)?

Fixes - hmmm.. interest rates might rise again so it's a gamble. Best I can find are;

2.75 % in easy access for now (taxable so 2.2% after tax) in case you need some money quickly
4.5% one year fix (3.6% after tax) As said the first £1,000 interest is tax-free 
3.65% ISA one year fix (tax free and £20,000 max)

Just ideas, not financial advice!

Millyonare

Best to set up a spreadsheet and model the various % scenarios over the next 1-2 years, or 18 months, to calculate the highest possible (net) return. That's the only way to accurately(ish) get a handle on the future returns. You'll have to play around with the numbers.

Right now, today, a Lloyds Club monthly regular saver at 5.25%, or a Kent 2-year fixed ISA at 4.30%, is probably going to get the best net rate (excluding pensions), albeit from modest sums.

Dyor, etc.