£500k gift......

Goliath64

Morning all,

Looking for any advice please from the forumites. I'm very aware how privileged this is and although anonymous feel bad even writing it. My Mum has been left £1m from a long lost uncle and giving me £500-600k to bypass the relevant tax issues with IHT in the future.

Current situation
39yrs old
Mortgaged house (owe £150k on £650k valued house bought in market slump so got lucky) paying 1.89% deal ending Jan 24 when it'll jump to 4.5% @ current rates.
My income (£40k), my wifes income (approx £25k) and we both pay into personal pensions etc
Savings in stocks and shares ISA - £23k and pay into kids JISA's £1k a year for house deposit in the future etc which they don't know about.

Generally every month our bank balance hits £0 around pay day. We have a nice life but are generally pretty frugal in what we 'do'. Our compromise here is good quality food and eating well mainly at home with the odd meal out at nice places pretty irregularly. We live rurally and therefore use a lot of fuel to do various activities.

We are looking at this money to improve our day to day life in terms of things to 'do' and would like to be able to do things like travel with our children while they are still wanting to travel with us, currently 8/10 years old to view the world, thailand, sri lanka, africa etc. 

Initial thoughts on using said cash:

1. Payoff mortgage to release £640 a month which we can utilise for the above. = £150k
2. Extend our house with double extension = £150k

This leaves £200-£300k.

1. Utilise £40k annual ISA allowance into stocks and shares that generally pay a dividend to call off if needed as cash (taxable but both of us are lower tax bracket so 8% or so). This will be higher risk FTSE/AIM stuff.
2. Put a lump sum into fixed savings accounts approx 4% a year that can be accessed if absolutely necessary - £100k. Use this to then lump into the above £40k annual ISA allowance each financial year.
3. £60-140k - get this into stocks and shares in taxable form.

This is all my own thinking, I have someone who I use for stocks and shares investments but not spoken to a FA (or would even know if this is the person to speak to). 

Any queries, questions or thoughts on the above, please advise and thanks in advance. 

george4064

Everything you’ve posted looks sensible, so looks like you’ve pretty much got it all worked out..

How much is in yours and your wife’s pensions? Are they pure DC or do either of you have some DB pension too?

Becareful about interest savings pushing you into the higher rate tax bracket and losing childcare allowance. Maybe utilise savings accounts in your wife’s name to make use of her allowances at the basic rate.

On the ISA, don’t see why you need dividends from those investments? Generally speaking, you’ll be reducing your long-term returns by concentrating on dividend income rather than taking a more holistic view on sources of returns (growth, quality and income).

Goliath64

Hi George

Mine has been paid into fully since starting employment from uni (local government and my wifes more recently). My brother and I are on a family business pension that the family don't take from (and don't plan to) which is in our name. Mum is 67 and Dad is 77 and both retired. This will be more than enough to retire at a 'normal' time but of course subject to how long my parents live, hopefully long!

VERY helpful re childcare allowance. We get the monthly £140 for both children but guessing this is what you mean here? Which savings are you refering to here? The second point above?

Thoughts on the ISA dividend was purely for easily accessible cash if necessary however if you don't think that's sensible something to absolutely consider. 

penners324

Have a good chunk in easy access savings so you don't go near to zero every month.

A pot for a holiday annually (or more).

Pay off the mortgage next year....

Dazed_and_C0nfused

VERY helpful re childcare allowance. We get the monthly £140 for both children but guessing this is what you mean here? Which savings are you refering to here? The second point above?

If your adjusted net income, which includes (taxable) interest and dividends (even if they are actually taxed at 0%) hits £50,100 then you have to start paying the High Income Child Benefit Charge.

MX5huggy

Pension Pension Pension. Your provision seems confused, so needs clarification but. Basically I would be putting both gross salaries into pensions this tax year and next. Presuming you’re not anywhere near Lifetime Allowance (just north of £1m).

£2880 for each child this tax year and next into Pensions (Fidelity don’t charge platform fee). £9000 each tax year for the kids Junior ISA’s. With consideration of stopping the £1k per year in the future.

Keep money available to pay off Mortgage when deal runs out but depending on what’s available then I would not be rushing to pay it off, mortgage money is cheap and investments in tax wrappers can outperform mortgage rates.

Invest in reducing running costs, Solar PV on the home, Electric Car. 

Book that holiday. 

Albermarle

My Mum has been left £1m from a long lost uncle and giving me £500-600k to bypass the relevant tax issues with IHT in the future.

Are you aware that if your Mum dies in the next 7 years, this gift will still be counted as part of her estate for inheritance tax purposes. Although if her husband is still alive, presumably all her estate will pass to him, so as long as he lives 7 years since the gift, I think you would be OK but not 100% certain.

Also if either were to need expensive care, and there was not enough family money to fund it, the council could well take this gift into account when looking at funding.

Hopefully it will never be an issue but best just be aware of it.

 I'm very aware how privileged this is and although anonymous feel bad even writing it. 

Maybe you could salve your conscience by making some donations to charities?

jimjames

Albermarle said:

My Mum has been left £1m from a long lost uncle and giving me £500-600k to bypass the relevant tax issues with IHT in the future.

Are you aware that if your Mum dies in the next 7 years, this gift will still be counted as part of her estate for inheritance tax purposes. Although if her husband is still alive, presumably all her estate will pass to him, so as long as he lives 7 years since the gift, I think you would be OK but not 100% certain.

Can you request variation of original will so that this will not be an issue and it's as if money was never received by the mother?

Goliath64

jimjames said:

Albermarle said:

My Mum has been left £1m from a long lost uncle and giving me £500-600k to bypass the relevant tax issues with IHT in the future.

Are you aware that if your Mum dies in the next 7 years, this gift will still be counted as part of her estate for inheritance tax purposes. Although if her husband is still alive, presumably all her estate will pass to him, so as long as he lives 7 years since the gift, I think you would be OK but not 100% certain.

Can you request variation of original will so that this will not be an issue and it's as if money was never received by the mother?

This is exactly what's happening. It will not be an issue due to the above ^. It bypasses my Mother so the 7 years part isn't an issues Albermarle.

Goliath64

Albermarle said:

My Mum has been left £1m from a long lost uncle and giving me £500-600k to bypass the relevant tax issues with IHT in the future.

Are you aware that if your Mum dies in the next 7 years, this gift will still be counted as part of her estate for inheritance tax purposes. Although if her husband is still alive, presumably all her estate will pass to him, so as long as he lives 7 years since the gift, I think you would be OK but not 100% certain.

Also if either were to need expensive care, and there was not enough family money to fund it, the council could well take this gift into account when looking at funding.

Hopefully it will never be an issue but best just be aware of it.

 I'm very aware how privileged this is and although anonymous feel bad even writing it. 

Maybe you could salve your conscience by making some donations to charities?

My parents have enough money to be fine in this respect,  which is why they are passing the money on (Or bypassing I guess). They will always be fine for money in terms of expensive care.

With regards to charity, absolutely. Plenty of money will be going to plenty of different locations  

Sg28

Buy a nice car, expensive holidays, and generally have fun! Whilst still being sensible. That would be my plan.