Receiving 100k, what to do with it?

Dazed_and_C0nfused

And just to add to the comprehensive explanation from @Exodi if your adjusted net income is currently not too much above the Personal Allowance taper limit (£125,140) then sacrificing some salary or making relief at source pension contributions can hit the sweet spot of 60%+ tax/NI saving.

In additional to the 40% tax relief or avoiding paying 40% tax (and 2% NI) in the first place you can start to retain your Personal Allowance, which because of the 2:1 nature of the taper results in the 60% relief/savings scenario.

Albermarle

artyboy said:

Bit late the party, but for me, funding the kids through Uni would be my #1 priority. I fundamentally disagree with the MSE position on student loans - it might not be a loan in the traditional sense, but it's a debt at commercial rates of interest, paid back as yet another tax on income, and with the thresholds decreasing with every new iteration.

As if it wasn't hard enough for this generation to get on the housing ladder... I consider myself lucky to be a Gen X, and even luckier to be able to support my kids and level the field a bit for them...

Even if the OP used the full £100K, it would still not be enough to avoid taking out student loans ( although maybe they would be smaller)
Tuition fees for 8 or 9 years ( maybe going up soon ) = £85 to £90K
Maintenance/living costs/spending money = £80 to £85K 

artyboy

Albermarle said:

artyboy said:

Bit late the party, but for me, funding the kids through Uni would be my #1 priority. I fundamentally disagree with the MSE position on student loans - it might not be a loan in the traditional sense, but it's a debt at commercial rates of interest, paid back as yet another tax on income, and with the thresholds decreasing with every new iteration.

As if it wasn't hard enough for this generation to get on the housing ladder... I consider myself lucky to be a Gen X, and even luckier to be able to support my kids and level the field a bit for them...

Even if the OP used the full £100K, it would still not be enough to avoid taking out student loans ( although maybe they would be smaller)
Tuition fees for 8 or 9 years ( maybe going up soon ) = £85 to £90K
Maintenance/living costs/spending money = £80 to £85K 

It's been about £20k/year in our experience. Flippantly you can say that's still cheaper than good independent schooling (which ours didn't get) so if you're in the fortunate position to be able to fund it, I consider it a good investment in your kids future...

spillthebeans

Ok, this is all amazing - thanks so much for everyone's time!

@Exodi, thank you for that additional explanation - i got you now. Learn something new every day :-). My employer takes my pension contributions before calculating tax and I'm contributing enough to max out my employer's contribution so i'll up my contribution there, esp given i'm 52 and hoping to retire sooner rather than later! Thanks again!

Which is a nice segway to @Dazed_and_C0nfused; so if I  contribute enough to my pension i could effectively get my tax bracket back down so that i get my personal allowance back?? Will go look this up

So far we've:

Paid off the mortgage (amazeballs!)

That leaves us with 70k after considering everything that was in our offset accounts. Obv those accounts dont affect any interest now so we need to move everything out of them, sooo..

We've setup a Moneybox LISA with our son who is 18 and will max that out for him. 

We'll also set him up a high interest savings account with Nationwide, 6.5%, and max that out.

Hopefully these two will give him enough for a deposit on a house when he's ready, i think thats our priority over paying off his loan.

We'll then max out out my wife and my ISAs which leaves us 20k

And we plan on just putting that across a high interest savings account and some premium bonds for why not.

And i think thats it!! 100k absorbed with a plop and mortgage finished! Bit of an anticlimax if im honest considering ive been trying to get here for 20 odd years. Maybe a negroni will help!

Thankyou everyone - this was super helpful to us

Dazed_and_C0nfused

spillthebeans said:

Ok, this is all amazing - thanks so much for everyone's time!

@Exodi, thank you for that additional explanation - i got you now. Learn something new every day :-). My employer takes my pension contributions before calculating tax and I'm contributing enough to max out my employer's contribution so i'll up my contribution there, esp given i'm 52 and hoping to retire sooner rather than later! Thanks again!

Which is a nice segway to @Dazed_and_C0nfused; so if I  contribute enough to my pension i could effectively get my tax bracket back down so that i get my personal allowance back?? Will go look this up

So far we've:

Paid off the mortgage (amazeballs!)

That leaves us with 70k after considering everything that was in our offset accounts. Obv those accounts dont affect any interest now so we need to move everything out of them, sooo..

We've setup a Moneybox LISA with our son who is 18 and will max that out for him. 

We'll also set him up a high interest savings account with Nationwide, 6.5%, and max that out.

Hopefully these two will give him enough for a deposit on a house when he's ready, i think thats our priority over paying off his loan.

We'll then max out out my wife and my ISAs which leaves us 20k

And we plan on just putting that across a high interest savings account and some premium bonds for why not.

And i think thats it!! 100k absorbed with a plop and mortgage finished! Bit of an anticlimax if im honest considering ive been trying to get here for 20 odd years. Maybe a negroni will help!

Thankyou everyone - this was super helpful to us

Yes.  But don't forget that any taxable (non ISA) interest you are going to be getting adds to your adjusted net income.

Additional pension contributions can be extremely tax efficient when the tapered Personal Allowance is a factor.

And they come in handy when it's time to retire 🙃

Bostonerimus1

1) Put 6 months' to a year's spending in the bank for emergencies.
2) Pay off all high interest debt (I would classify 6.8% mortgage interest as high)
3) Increase your contributions to DC pensions, invest in low cost index funds
4) Increase your contributions to ISAs, invest in low cost index funds
5) Open a general investment account, invest in low cost index funds.

You might want to help children with university fees, but I would put that below step 2). If you pay off the mortgage allocate what you would have paid into the mortgage to 3), 4) or 5).

Bostonerimus1

artyboy said:

Albermarle said:

artyboy said:

Bit late the party, but for me, funding the kids through Uni would be my #1 priority. I fundamentally disagree with the MSE position on student loans - it might not be a loan in the traditional sense, but it's a debt at commercial rates of interest, paid back as yet another tax on income, and with the thresholds decreasing with every new iteration.

As if it wasn't hard enough for this generation to get on the housing ladder... I consider myself lucky to be a Gen X, and even luckier to be able to support my kids and level the field a bit for them...

Even if the OP used the full £100K, it would still not be enough to avoid taking out student loans ( although maybe they would be smaller)
Tuition fees for 8 or 9 years ( maybe going up soon ) = £85 to £90K
Maintenance/living costs/spending money = £80 to £85K 

It's been about £20k/year in our experience. Flippantly you can say that's still cheaper than good independent schooling (which ours didn't get) so if you're in the fortunate position to be able to fund it, I consider it a good investment in your kids future...

I heard on Radio 4's Money Box that the average graduating student debt in England is £48k, it's obviously far lower for Scottish students in Scotland at £15k.

Exodi

spillthebeans said:

Ok, this is all amazing - thanks so much for everyone's time!

@Exodi, thank you for that additional explanation - i got you now. Learn something new every day :-). My employer takes my pension contributions before calculating tax and I'm contributing enough to max out my employer's contribution so i'll up my contribution there, esp given i'm 52 and hoping to retire sooner rather than later! Thanks again!

Which is a nice segway to @Dazed_and_C0nfused; so if I  contribute enough to my pension i could effectively get my tax bracket back down so that i get my personal allowance back?? Will go look this up

So far we've:

Paid off the mortgage (amazeballs!)

That leaves us with 70k after considering everything that was in our offset accounts. Obv those accounts dont affect any interest now so we need to move everything out of them, sooo..

We've setup a Moneybox LISA with our son who is 18 and will max that out for him. 

We'll also set him up a high interest savings account with Nationwide, 6.5%, and max that out.

Hopefully these two will give him enough for a deposit on a house when he's ready, i think thats our priority over paying off his loan.

We'll then max out out my wife and my ISAs which leaves us 20k

And we plan on just putting that across a high interest savings account and some premium bonds for why not.

And i think thats it!! 100k absorbed with a plop and mortgage finished! Bit of an anticlimax if im honest considering ive been trying to get here for 20 odd years. Maybe a negroni will help!

Thankyou everyone - this was super helpful to us

That's great you understood, I appreciate these things can appear complicated and even better that you have access to a scheme where you can contribute gross - this means you likely see an additional upside in pension contributions via savings on national insurance (employee and potentially employer).

When do you intend to retire? I think as you are both in your 50's, you should be seriously looking at your retirement plan and what your options may be.

I'll be completely frank here, I am somewhat suprised at your decisions and speed in which have actioned the above (you mentioned a £100k gift and £60k left on your mortgage, but ended up with £70k after paying off your mortgage so I'd presume you had £30k in savings beforehand in your offset account).

What's your income as well as it sounds like you may be a very high earner (£100k+)? Also what are your current pension pots? I'm not being nosey, the reason for asking is it may have been short-sighted to max out ISA's and savings accounts and stuff while you continue to pay at least 42% on your income. Unless you are expecting to also be a higher rate tax payer in retirement (e.g. draw an income of £50k+ per year/have individual pots of ~£1M) then you've left a lot of free money on the table. It makes even less sense as you hoped to retire early as you could access this money sooner.

It sounds like it's too late to go back on anything now, but if it were me, I would have put the money in the offset account and used it to subsidise my income while maxing out my pension contributions every year (assuming I didn't have a massive pension pot already) with a plan to retire earlier. The likely situation would then be accessing this money in only 5-10 years, which (assuming you're drawing £50k or less (technically more because of the LSA)) when you draw on it in retirement would be incurring tax of 20% (instead of the 40% you're paying receiving the money now). Of course there is no right or wrong answer and you may already have an eye-watering pension pot already.

If anything though, it's great you're mortgage free, at if at least for the emotional aspect of it. Well done.