Best way to invest £100k

Sonic_1980

Morning

looking for some advice. We have recently inherited £100k and would like some ideas on best way to invest it. 

A little background. I am in my mid 40s. Work in a school on £65k salary. Not much in the way of savings, but good pension building after being in teaching for 20 years. Have a mortgage on a £350k house which has £110k and 13 years left. Low rate (2.54%) till 2027. If I repay now it would be a £3k fee, but would save £20k in interest over the full term. 

I’ve not a clue about Cash or S&S ISAs…

what would be the most prudent use of this money? Ideas lost welcome. 

jimjames

You mention "we" so that means you each have £20k ISA allowance and can add £40k now and £40k after 5 April. At least if you do that it will secure your allowance and allow you to decide what to do longer term

tacpot12

The best arrangement is probably to put the money on deposit for two years. As jimjames suggests, if the money arrives before 5th April, you can get £80K put into Cash ISAs, and then you can split the remaining £20K between you to maximise the use of your tax allowances for savings and then move it to ISA in 2026. 

After two years, you should look to repay the mortgage in full. (As the balance is going down, and you will be getting interest on the inheritance money, you should be able to clear the mortgage completely). 

Then you can use your mortgage payments to rebuild your cash savings into ISAs. Do keep an eye out for government announcements on ISAs. The UK ISA regime is very generous, and the government may want to limit how much people can have in ISAs in order to generate more tax.

If you adopt this plan, you would be able to tie up most of your money in ISAs for two years, so you should look at fixed rate deals including ISA Bonds. You should keep some (perhaps £10k) in a easy-access Cash ISA in case of emergencies). 

kempiejon

I see you've done the sums on clearning now and taking the early repayment charge and savings interest over the term. How different do those numbers look based on making the maximum overpayments until the rate changes in 2027 and then settling up? For the time being adding to ISAs and £50k premium bonds looks like you can keep the cash, easy access and stay out of a tax charge on interest. Always a slim chance of a PB windfall too.

Don't forget to earmeark the mortgage payments once settled for something worthwhile.

Albermarle

I’ve not a clue about Cash or S&S ISAs…

So now you have a lot of spare cash it would be a good time to start learning.

Some basics;

Savings accounts are safe and pay a rate of interest. They can be easy access with a variable rate of interest, or fixed rate/fixed term.

Stocks and shares are risk based investments. For some more risk than savings you hope for more reward. They are better for the long term as the longer you leave them the more likely you will gain rather than lose. Historically over the long term they have nearly always outperformed cash savings, in some periods by a very long way.

An ISA is a 'tax wrapper' that protects savings interest, or returns from stocks and shares from tax. So for example if you have a normal savings account, you may pay tax on some of the interest. If you hold the money in a Cash ISA savings account, there is no tax. However the max you can add is 20K pa.

Savings - All Guides - MoneySavingExpert

Stocks & shares ISAs: find the best platform - MSE

Doonhamer

Since you're a higher rate tax payer put it in a cash ISA before and after April and premium bonds. Also look to put more in a pension, you will get 40% tax relief

sherbie28

I understand an ISA is tax free, I don't get the purpose. Are they fit people who can put £20k there and never touch it and then year on year add another £20k? Eventually you'll want or need that money so when your take it out you'll be taxed on the interest? Or are you supposed to leave it there until death but then what? I'm either being really stupid, obviously this is probably pointless if the budget rumours re: ISA's are true, I'm imagining people who don't have any will be arriving too late to the party!

SacredStephan

sherbie28 said:

I understand an ISA is tax free, I don't get the purpose. Are they fit people who can put £20k there and never touch it and then year on year add another £20k? Eventually you'll want or need that money so when your take it out you'll be taxed on the interest? 

They are for any saver who wants to pay no tax on their interest. You can contribute between zero and 20k per tax year. No tax is payable on withdrawls. Some can afford to contribute the max 20k per year, some can't. Tax free year after year and no need to report your interest to HMRC.

Dazed_and_C0nfused

sherbie28 said:

I understand an ISA is tax free, I don't get the purpose. Are they fit people who can put £20k there and never touch it and then year on year add another £20k? Eventually you'll want or need that money so when your take it out you'll be taxed on the interest? Or are you supposed to leave it there until death but then what? I'm either being really stupid, obviously this is probably pointless if the budget rumours re: ISA's are true, I'm imagining people who don't have any will be arriving too late to the party!

Why do you think you would be taxed on the interest paid by a tax exempt product like an ISA?

sherbie28

I may have misunderstood but I was under the impression that if I put £20k in this year and then £20k in next tax year. At 5% it earns £2k interest over two years. If in 3rd year I took that 2k out and transferred it to my current account i'be be taxed on it because it's interest. 

[Deleted User]

sherbie28 said:

I may have misunderstood but I was under the impression that if I put £20k in this year and then £20k in next tax year. At 5% it earns £2k interest over two years. If in 3rd year I took that 2k out and transferred it to my current account i'be be taxed on it because it's interest. 

Interest on ISAs is not taxed. So if you put £20k in at 5% for one year, you'll have £21k. You can then add £20k and in the second year (assuming 5%) you'll have £43.05k. You can then withdraw it (or any part of it) and still pay no tax.