Being given £200k

Beccabees

This is going to sound ridiculously tone deaf and privileged, particularly at the moment but… my husband just called and said his parents want to give us £200k. He said no (we are doing fine financially and are in our 30s so a bit old to be taking hand outs we don’t need) but they are apparently adamant.

We had had some previous hints that they may be going to give us a gift but we had no idea it would be so much. I am really unsure how to feel about this. We are lucky to have good incomes so have been relatively unscathed by the current financial mess but we worrying a bit about money as I’m about to go on maternity leave and we will be depleting our emergency fund to make the nursery habitable and redo a mouldy bathroom. And like everyone we were stressing about our mortgage rate soaring when we come to remortgage our scarily massive mortgage. 

Weirdly I feel a bit deflated - obviously it’s a lovely problem to have but it kind of negates the saving and financial planning I’ve been trying to do for the past few years. I’m also a little worried about strings being attached - they say there are no conditions but I don’t want to feel like we have to justify (or even share) our financial decisions going forwards but it’s money they’ve earned not us so maybe they do have a right to have a say.

So when I get my head round this what should we do with the money? We haven’t earned it so don’t want to squander it. Some will be going to rebuild (and enlarge) the emergency fund but after that I have no idea what to do. There are other works that need doing to the house (it’s a fixer upper we’ve been gradually working on for the last few years) but I don’t want the in laws to think we are just going on a spending spree. So do we save or invest it?

We have ISAs set up so could drip feed into there but it would be a big change to be making decisions over so much money (at the moment there’s maybe £20k in total in the ISAs.

We are also hoping to move in 3-5 years to a more expensive property, though that plan is very much on hold until the property market looks more certain and we can get a mortgage with monthly repayments that won’t keep us awake at night.

Are there other things we should be thinking about? Tax implications? I have no idea where to start, this will be far more money than we’ve ever had.

Bigwheels1111

A non refundable gift from parents has tax implications if they die before 7 year I think it is.

Daliah

First thing to keep in mind is that the money will form part of your inlaws' estate for the next 7 years. 



That's one reason therefore for keeping the money in cash savings, not in investments. The second reason for doing so is that you might want to spend some or all of it in your move to a larger property in 4-5 years.

So keep your money in accessible savings accounts for the next few years, with no more than £85k per person in the same financial institution. There is a huge choice of savings accounts at your disposition: https://moneyfacts.co.uk/savings-accounts/

Adding to your cash ISAs probably makes sense https://www.moneysavingexpert.com/latesttip/#cashisas. You can opt for fixed term ISAs as they (as opposed to non-ISA fixed term accounts) can be accessed / closed if required, albeit at a small penalty.

As you are expecting a child, you could also think about a JISA for your little one as soon as he/she has arrived. Though be aware, money in the JISA is your child's, not yours.

Another option might be £50k each in Premium Bonds for you and your husband. Any winnings are tax free though naturally, they aren't guaranteed and the average return is way below the return in the best savings accounts.

noh

Bigwheels1111 said:

A non refundable gift from parents has tax implications if they die before 7 year I think it is.

No tax implication for the recipient.
No negative tax  implications for the donors estate compared with not making the gift.

Keep_pedalling

Presumably they are doing this because they can easily afford it, and they would rather see it put to good use in their lifetime rather than after they are dead. It may also be the case that their net worth will take them into IHT territory and gifting is one of the best ways of reducing that liability.

We have made substantial gifts to our children partly to to reduce IHT, but it has given us great pleasure to help them get on the housing ladder and our financial support has allowed our daughter and DIL to be full time mums to our very young grandchildren.

There are no tax implications with gifts either for you or them, providing they live another 7 years the £200k will fall out of their estates but if they don’t the amount of IHT their estates would pay would not be higher than it would have been if they had never made the gift.

Beccabees

Thank you everyone.

Thankfully they are in good health so the seven year rule will hopefully not be a problem but we will keep a big cash pot for the next few years at least in case that changes.

They are well into IHT territory, I’ve no idea what their assets are over all but their primary residence alone will be several million and I believe divesting in time to avoid the full IHT hit is part of the reason they want to do this.

We also have a two year old so could think about a JISA for each of the kids - though the risk of them being irresponsible at 18 does worry me a bit!

dunstonh

Gifting is one of the most efficient methods of reducing potential inheritance tax liability.   So, it is very common when parents have wealth and look at ways to reduce the potential tax bill.    Plus, they get to see their children benefit from the money and take pleasure from that.  Which they cannot do from the grave.

steampowered

With a large sum of money like this, you need to think long term.

It's also important to consider investing. It is not wise to have all of your money in bank accounts where it will lose value to inflation over time. Lots of people are needlessly scared of investing just because they never had cause to learn. If you  you have never learnt about investments before, now is a great time to spend a bit of time reading up on the basics. 

What is your pension situation like? If you are currently only making the minimum auto enrolment contributions into your pension, that's probably not going to be enough if you want to be able to retire age 68, so you could use this money to up your contributions. Pension contributions are very tax efficient especially for higher rate tax payers.

You could think about something like this:

• £18,000 into JISAs for your kids. 
• £20,000 for you and another £20,000 for hubby into Stocks & Shares ISAs. If you don't want to take an excessive level of risk, you could invest in a stock market tracker fund rather than trying to pick individual shares.
• £40,000 held in savings for now - earmarked to put into your Stocks & Shares ISAs next April when your S&S ISA allowance refreshes. Or to top-up your pensions. 
• £40,000 to do up the house. 
• £50,000 in cash savings accounts for flexibility.  
• £10,000 to enjoy a nice holiday! 

El_Torro

Since you are planning to move to a more expensive property in the next 3-5 years I think a good use of the money would be to put into the deposit to reduce your mortgage payments. Although I don't know your in-laws they might be happy knowing that the money has been put to this use, their grandkid(s) will also benefit from living in a nicer house / nicer area. 

If you are earmarking all the money for a deposit I wouldn't invest any of it, if you're planning to use it in 5 years or less. Thinking longer term you could invest some of it, in your pensions or Stocks & Shares ISAs. One word of warning about S&S ISAs though: If you are not comfortable with investing already it could be tempting to cash in at the wrong time (for example now, global stock markets are not currently having a good time), thereby losing money and defeating the purpose of investing. As steampowered says investing is a great tool, but requires research if you're not already comfortable with it.

A benefit of putting the money towards your next property is that your mortgage payments will be reduced, giving you more disposable income, which can be invested. Either for the benefit of you and your husband, or your offspring.

Beccabees

Pensions contributions are ok I think, everyone worries about having enough but we are contributing 10% each with employers paying 5%. We are both higher rate tax payers and 33 so have a way to go before retirement.

Our ISAs are stocks and shares ISAs, I understand the basics of investing but this would be on a whole different level. But I have a pipe dream of retiring in our 50s so we’d need to get comfortable with investing soon if we are going to make that a reality so maybe it’s time to do some proper reading rather than dabbling.

Having read the advice on here my current thinking is:

£30,000 on the house

£30,000 in an easy access savings account for an emergency fund

£40,000 into the stocks and shares ISAs

£100,000 into fixed rate savings accounts with as high interest as we can get to go towards the next property (with a possibility of feeding some of that into the stocks and shares ISAs in the next tax year if it looks like mortgage rates will be such that we can’t afford the move for a while yet). I think parents in law would be most keen on our spending the money to move to a safer area - we are in central London and this is our first property so while it’s not a bad area it’s also not somewhere that’s necessarily ideal for kids, especially as they get older.

steampowered

Beccabees said:

Pensions contributions are ok I think, everyone worries about having enough but we are contributing 10% each with employers paying 5%. We are both higher rate tax payers and 33 so have a way to go before retirement.

Our ISAs are stocks and shares ISAs, I understand the basics of investing but this would be on a whole different level. But I have a pipe dream of retiring in our 50s so we’d need to get comfortable with investing soon if we are going to make that a reality so maybe it’s time to do some proper reading rather than dabbling.

Think of it this way:

If you would like to retire aged 55, you have 22 years until retirement.

According to .gov.uk, you have an average life expectancy of 88 years. So, if you retired age 55, you'd need your money to last 33 years on average.

That means every 2 years you have left in your working life, needs to pay for 3 years in retirement. The state pension would help from age 68 onwards but it's not big money.

Your current pension contributions are good but realistically won't cut it if you want to be able to retire before your sixties, so you'd either need to up your pension contributions significantly or make sure you are really building up those S&S ISAs.

It's worth having a read of blogs written by people who follow the "Financial Independence, Retire Early" movement, some of them are super interesting.