Wanting a heads up on Rationalising Pension and Inheritance 'stuff'

Rodders2409

Hi All,

Its been a while since tapping into your lovely brains, and as always all info gratefully received.

Currently living a frugal and reasonable life, low outgoings and stable, not looking to set the world a blaze with spending, however completion of a recent inheritance process means I should review and tidy things up.

Summary of current status.

57yrs, retired early and now a full time carer for DW.
Kids taken care of with regards to own properties (deposits) following inheritance.
Living within our means, no additional savings being made or additional pension inputs. 

Cash savings £35K held across Santander 123 and HSBC High interest savings accounts.

Various Pensions in my name .
£328K - Aegon Growth Tracker (Flexible Target) 2024 (ARC) Pension Fund
£108K - Across three Friends Life Pension products

Rental Property in my name successfully rented out for the past 20yrs
Capital Value (no mortgage)  - £245K
Rental Income - £11K net

Inheritance - £200K due August.

I'm probably going to be talking to an IFA at some point soon, but I'm always interested in having as much info as possible beforehand. So, the questions....

I'm looking not to need to work again, but will if required, and like the idea of a mix of incomes with different risk levels. I'm looking to consolidate the existing pensions and be ready to draw down monthly on the pot in a year's time. The draw down level I was thinking about was at the 4% level so this could be the low risk portion...any suggestions on the how...where...when?

The property would remain rented out....

The £200K inheritance would be put into some sort of managed fund, I'd be looking to draw down monthly on this too.
Funds that seem to fit include...
 - Vanguard SustainableLife 60-70% Equity A Acc
- HSBC Global Strategy Dynamic Portfolio C Acc
- HSBC Global Strategy Balanced Portfolio C Acc

An annual Income across all streams of approx £35K is what I'm hoping for, room for reasonable upside would be a bonus ☺....any suggestions on alternatives?

Cheers in advance.....

 

Rodders2409

Thanks James,

Of course, here are the details...

Home owner with zero mortgage.
Yes, I'm paid up for a full pension in 10yrs time did  an online check yesterday, no contributions to any pension schemes for the past 4yrs since becoming a carer.

My DW has a significant, terminal, condition and  we're currently living on a combination of PIP, Carers allowance and the rental income. Its tight but manageable.

Cheers.

Rodders2409

Hello all, 
If there's more info required, please let me know...thanks.

EthicsGradient

Hi,
Sorry about your wife's condition. It does make it hard to know what to do - if 'terminal' means she most probably has very little time left, then you're planning for that awful moment, really (and won't want a lot of financial stuff on your plate then). If she still may have a significant amount of time left after you start drawing your pension, I might, for instance, suggest transferring the rental property into her name, so that her personal allowance can be used to take that income without paying tax, and all your own allowance is used for  your pension (my small understanding of PIP is that it is not taxed, and owning the asset of the rental property, and getting an income on it. wouldn't affect her payments).

In general, it will make sense to use both your and your wife's ISA allowances this year to shelter £40k of the inheritance, and repeat that next year too. You can also put some of the rest in short term accounts (notice accounts? Fixed term accounts?) and use that to provide the balance of your spending needs in the next year or two - you wouldn't pay tax on the capital you withdraw. 

Rodders2409

Thanks Ethics,

It's a complex and  dificult prognosis, anything more than 2yrs might be considered a medical marvel, but were doingg okay on one day at a time...Im using the inheritance event as time to review etc as it's an important event.

There's no tax bring paid, as you're correct that PIP attracts zero tax and my threshold isn't exceeded. There seems little point in any property transfer therefore.

I'm thinking that 40K in ISAs at approx 5% gains 2K tax free, however, thats equal to net returns against 40K in a fund achieving 6% with standard tax being paid, or thereabouts....and there's possible upside in a fund.

In broad terms I was thinking that my existing pensions would be kept in a 60 / 40 fund or even 60 / 50 fund...meaning its not high risk, and the inheritance might be higher risk at 80 / 20.

Remembering that SP will kick in at some point...if there's anything g left in the countries coffers...!!

EthicsGradient

Rodders2409 said:

Thanks Ethics,

It's a complex and  dificult prognosis, anything more than 2yrs might be considered a medical marvel, but were doingg okay on one day at a time...Im using the inheritance event as time to review etc as it's an important event.

There's no tax bring paid, as you're correct that PIP attracts zero tax and my threshold isn't exceeded. There seems little point in any property transfer therefore.

I'm thinking that 40K in ISAs at approx 5% gains 2K tax free, however, thats equal to net returns against 40K in a fund achieving 6% with standard tax being paid, or thereabouts....and there's possible upside in a fund.

In broad terms I was thinking that my existing pensions would be kept in a 60 / 40 fund or even 60 / 50 fund...meaning its not high risk, and the inheritance might be higher risk at 80 / 20.

Remembering that SP will kick in at some point...if there's anything g left in the countries coffers...!!

But you may as well use a couple of S&S ISAs to hold 40k of the fund where there's no income tax on the dividends, nor capital gains tax on long term gain. And if you put more of the inheritance in an unsheltered fund, it's worth considering 'Bed & ISA-ing' it in future tax years - selling 20k of the fund outside the ISA, making that a contribution into the ISA, and buying the fund again inside the ISA, where it will be free of income and CG tax until you've sheltered the whole fund. You can still withdraw money from the ISA to act as your income, but it attracts no tax.

Albermarle

EthicsGradient said:

Rodders2409 said:

Thanks Ethics,

It's a complex and  dificult prognosis, anything more than 2yrs might be considered a medical marvel, but were doingg okay on one day at a time...Im using the inheritance event as time to review etc as it's an important event.

There's no tax bring paid, as you're correct that PIP attracts zero tax and my threshold isn't exceeded. There seems little point in any property transfer therefore.

I'm thinking that 40K in ISAs at approx 5% gains 2K tax free, however, thats equal to net returns against 40K in a fund achieving 6% with standard tax being paid, or thereabouts....and there's possible upside in a fund.

In broad terms I was thinking that my existing pensions would be kept in a 60 / 40 fund or even 60 / 50 fund...meaning its not high risk, and the inheritance might be higher risk at 80 / 20.

Remembering that SP will kick in at some point...if there's anything g left in the countries coffers...!!

But you may as well use a couple of S&S ISAs to hold 40k of the fund where there's no income tax on the dividends, nor capital gains tax on long term gain. And if you put more of the inheritance in an unsheltered fund, it's worth considering 'Bed & ISA-ing' it in future tax years - selling 20k of the fund outside the ISA, making that a contribution into the ISA, and buying the fund again inside the ISA, where it will be free of income and CG tax until you've sheltered the whole fund. You can still withdraw money from the ISA to act as your income, but it attracts no tax.

Also having the money in a S&S ISA means there is almost no administration needed.
In an unsheltered environment you have to keep notes of dividends, buys & sells and sometimes submit these to HMRC.

eskbanker

Rodders2409 said:

In broad terms I was thinking that my existing pensions would be kept in a 60 / 40 fund or even 60 / 50 fund...

Second one sounds good, you'd be 10% up immediately

Rodders2409

eskbanker said:

Rodders2409 said:

In broad terms I was thinking that my existing pensions would be kept in a 60 / 40 fund or even 60 / 50 fund...

Second one sounds good, you'd be 10% up immediately

...ooooopps... 🙄🤦‍♂️

Rodders2409

Thanks Ethics,

Can you expand on...
" 'Bed & ISA-ing' it in future tax years - selling 20k of the fund outside the ISA, making that a contribution into the ISA, and buying the fund again inside the ISA, where it will be free of income and CG tax until you've sheltered the whole fund. You can still withdraw money from the ISA to act as your income, but it attracts no tax"

"Bed" ?....and to be honest 'm a tad lost on the remainder of your info...🤔

silvercar

Sorry that you are in a difficult situation. If I can interject with one little bit of tax planning. If you expect your wife to pre-decease you, you could transfer your share of the rental property to your wife now. Transfers between spouses are tax free and don’t need to be notified to hmrc. Then when the awful event occurs, you would inherit the property at its current value. This would save you some CGT.