Best way to invest £500k inheritance?

What_time_is_it

My partner expects in inherit around £500,000 once probate is secured and the inherited house sale has gone through - should be early next year. But we are unsure how best to invest this?

We are both in out mid 40s. No children. Both working full-time.
We have around £90k outstanding on our mortgage which is currently on a low interest rate fix until summer 2024.
No other debts and around £40k of current savings between us.
We would both like to retire early if possible.
We both have a DB pension (currently worth around £10k pa/£4k pa respectively) and a DC pension (around £100k / £10k respectively). We can make contributions to the DC pots through salary sacrifice each month or with lump sums.

What would you advise?

EthicsGradient

If your partner is OK with using the inheritance to provide a good chunk of your day-to-day expenses, then doing that and each doing the maximum possible salary sacrifice is almost bound to be the first thing to do - this builds up your DC pots for early retirement, and saves NI. Legally, you can each decrease your wages to the national minimum wage via this, though I don't know if any employer puts their own limits on it too.

Do you want to remain in your current house, or might you move? Your primary residence is still a good investment, and can bring a lot of pleasure if chosen well, so using some for that is an idea.

Linton

For that sum of money and I guess limited experience of serious money management I suggest you pay for advice from an IFA - ensure that you are talking to an Independent FA rather than say a bank employee.   Apart from apart from discussing appropriate investments an IFA would help you with mihnimising tax and inheritance issues.

To find an IFA I suggest you identify say 3 local small companies ideally recommended by friends & family, arrange a 30 minute discussion with each of them.  They will tell you how they can help you and the likely costs.  You can then choose the one you feel most comfortable working with.

Before taking advice though it is important for you to do is to decide in as much detail as possible what you want the money for.  Of course you may change your minds in the future but an IFA will need some basis on which to start.

sevenhills

Put the maximum amount in both your pensions.

Under HM Revenue & Customs (HMRC) rules there is a limit on the total amount you can save each tax year into all registered pension schemes and the tax relief you receive on your contributions. The maximum is 100% of your relevant UK earnings. The annual allowance limit for the current tax year is £60,000. This limit includes all your contributions, tax relief and employer contributions across all your pension arrangements.

What_time_is_it

sevenhills said:

Put the maximum amount in both your pensions.

Under HM Revenue & Customs (HMRC) rules there is a limit on the total amount you can save each tax year into all registered pension schemes and the tax relief you receive on your contributions. The maximum is 100% of your relevant UK earnings. The annual allowance limit for the current tax year is £60,000. This limit includes all your contributions, tax relief and employer contributions across all your pension arrangements.

@sevenhills - Is tax relief on pension contributions capped at the same amount as the income tax you pay over the year? Or can tax be recovered against previous years' income tax payments providing that the total pension contributions do not exceed 100% of earnings in the current year?

handful

What_time_is_it said:

sevenhills said:

Put the maximum amount in both your pensions.

Under HM Revenue & Customs (HMRC) rules there is a limit on the total amount you can save each tax year into all registered pension schemes and the tax relief you receive on your contributions. The maximum is 100% of your relevant UK earnings. The annual allowance limit for the current tax year is £60,000. This limit includes all your contributions, tax relief and employer contributions across all your pension arrangements.

@sevenhills - Is tax relief on pension contributions capped at the same amount as the income tax you pay over the year? Or can tax be recovered against previous years' income tax payments providing that the total pension contributions do not exceed 100% of earnings in the current year?

Tax relief is capped based on how much you earn or £60,000, whichever is the lower. so if you earn £60k or more the most you can contribute net is £48k becasue you have to add 25% to your contribution to calculate the gross contribution, if that makes sense! I've just done a simiar thing with an inheritance but mine wasn't as much as yours. It's a lovely feeling paying off the mortgage sooner than expected!

What_time_is_it

handful said:

What_time_is_it said:

sevenhills said:

Put the maximum amount in both your pensions.

Under HM Revenue & Customs (HMRC) rules there is a limit on the total amount you can save each tax year into all registered pension schemes and the tax relief you receive on your contributions. The maximum is 100% of your relevant UK earnings. The annual allowance limit for the current tax year is £60,000. This limit includes all your contributions, tax relief and employer contributions across all your pension arrangements.

@sevenhills - Is tax relief on pension contributions capped at the same amount as the income tax you pay over the year? Or can tax be recovered against previous years' income tax payments providing that the total pension contributions do not exceed 100% of earnings in the current year?

Tax relief is capped based on how much you earn or £60,000, whichever is the lower. so if you earn £60k or more the most you can contribute net is £48k becasue you have to add 25% to your contribution to calculate the gross contribution, if that makes sense! I've just done a simiar thing with an inheritance but mine wasn't as much as yours. It's a lovely feeling paying off the mortgage sooner than expected!

Thanks @handful. I guess what I'm asking is whether it's possible to claim back more tax relief than the amount you have paid over the year (by using previous years' tax maybe?)?

e.g. If I earn £40k and pay income tax of about £6k on it over the year, but I put away £2,500 into my pension pot each month and get £625 tax relief added to my pension each time, will this tax relief when I hit £6k for the year? Or will I end up paying £6k in tax, but getting back £7,500 in tax relief?

ColdIron

What_time_is_it said:

handful said:

What_time_is_it said:

sevenhills said:

Put the maximum amount in both your pensions.

Under HM Revenue & Customs (HMRC) rules there is a limit on the total amount you can save each tax year into all registered pension schemes and the tax relief you receive on your contributions. The maximum is 100% of your relevant UK earnings. The annual allowance limit for the current tax year is £60,000. This limit includes all your contributions, tax relief and employer contributions across all your pension arrangements.

@sevenhills - Is tax relief on pension contributions capped at the same amount as the income tax you pay over the year? Or can tax be recovered against previous years' income tax payments providing that the total pension contributions do not exceed 100% of earnings in the current year?

Tax relief is capped based on how much you earn or £60,000, whichever is the lower. so if you earn £60k or more the most you can contribute net is £48k becasue you have to add 25% to your contribution to calculate the gross contribution, if that makes sense! I've just done a simiar thing with an inheritance but mine wasn't as much as yours. It's a lovely feeling paying off the mortgage sooner than expected!

Thanks @handful. I guess what I'm asking is whether it's possible to claim back more tax relief than the amount you have paid over the year (by using previous years' tax maybe?)?

Yes at basic rate, no at higher rate. Nothing to do with Carry Forward from previous years

For instance non earners (and therefore non tax payers) can contribute £2,880 and receive £720

Or will I end up paying £6k in tax, but getting back £7,500 in tax relief?

Yes

handful

What_time_is_it said:

handful said:

What_time_is_it said:

sevenhills said:

Put the maximum amount in both your pensions.

Under HM Revenue & Customs (HMRC) rules there is a limit on the total amount you can save each tax year into all registered pension schemes and the tax relief you receive on your contributions. The maximum is 100% of your relevant UK earnings. The annual allowance limit for the current tax year is £60,000. This limit includes all your contributions, tax relief and employer contributions across all your pension arrangements.

@sevenhills - Is tax relief on pension contributions capped at the same amount as the income tax you pay over the year? Or can tax be recovered against previous years' income tax payments providing that the total pension contributions do not exceed 100% of earnings in the current year?

Tax relief is capped based on how much you earn or £60,000, whichever is the lower. so if you earn £60k or more the most you can contribute net is £48k becasue you have to add 25% to your contribution to calculate the gross contribution, if that makes sense! I've just done a simiar thing with an inheritance but mine wasn't as much as yours. It's a lovely feeling paying off the mortgage sooner than expected!

Thanks @handful. I guess what I'm asking is whether it's possible to claim back more tax relief than the amount you have paid over the year (by using previous years' tax maybe?)?

e.g. If I earn £40k and pay income tax of about £6k on it over the year, but I put away £2,500 into my pension pot each month and get £625 tax relief added to my pension each time, will this tax relief when I hit £6k for the year? Or will I end up paying £6k in tax, but getting back £7,500 in tax relief?

You can't pay in and get tax relief more than you earn this year. So using your example, if you were paying £2500 in and getting the £625 TR, over 12 months that would be £37500 that you have paid in and you only have scope for another £2500 including relief so £2000 net. Remember to include any workplace pensions and employer contributions but the TR will have been taken at source and not added to the pension. If you salary sacrifice remember you can't reduce to below the minimum wage.

Keep_pedalling

Are you married or in a civil partnership? If not then you both should reconsider your marital status as the premature death of your partner is going to leave you facing a massive IHT bill. 

What_time_is_it

Keep_pedalling said:

Are you married or in a civil partnership? If not then you both should reconsider your marital status as the premature death of your partner is going to leave you facing a massive IHT bill. 

Yes - civil partnership. 
I'm not sure what the IHT implications of that are to be honest?