Imminent life-changing inheritance. What to do first?

SiliconChip

EthicsGradient said:

kimwp said:

SiliconChip said:

EthicsGradient said:

WishIHadKnownBetter said:

Linton said:

Only when you have a rough idea of what you want would it be sensible to consult an IFA as to how to achieve it.  Best to use a small local Independent Financial Advisor rather than one of the nationals who would likely be much more expensive.  Avoid anyone who is not independent (eg your bank advisor) who would not be able to say they are an IFA and would be restricted to only selling you their employer's  products.

A local high street IFA should be well used to dealing with lump sums of £500K.  A good way to find one is from family and friends or by Googling  for say 3 in your nearest town and then fixing up a free half hour meeting with each for you to explain what you want and they to explain what they can do for you and the cost. You can then chose the one you would feel most comfortable working with.

Thank you. Yes, as above we need to decide what we want, but have some breathing space to do so.

As an aside, and having never been in this situation before, I assume we will be paying tax on the interest next year if we simply have in savings accounts for a while. We already complete self-assessments for our self-employment (they are simple returns). We can presumably account for this ourselves or does it require specialist accounting knowledge?

But there wouldn’t be any tax to pay as the lump sum hits our account if I understand correctly?

No, it doesn't need any specialist knowledge - it's just adding up the interest from each account, and each bank etc. will give you their figure, either as a yearly summary or recorded on the account as it's added.

While I think it's a good idea to do that so that you know how much interest has been earned it shouldn't be necessary for tax purposes as all banks have to report interest to HMRC and they will calculate how much tax is due and inform you how it will be collected (often through a change to your tax code). Keeping your own records will allow you to check that HMRC have used the same figure in their calculation.

I think the individual has to report their savings interest if they fill a tax return. And needs to do a tax return, regardless of any other need, if the interest is over £10k. (Though check this!)

Yes, since they already self-assess, they will have to give their interest figure on the self-assessment return.

While that's true I don't see any sign that it applies to the OP (in fact, their modest income makes it unlikely that they SA unless that income is from self employment).

kimwp

SiliconChip said:

EthicsGradient said:

kimwp said:

SiliconChip said:

EthicsGradient said:

WishIHadKnownBetter said:

Linton said:

Only when you have a rough idea of what you want would it be sensible to consult an IFA as to how to achieve it.  Best to use a small local Independent Financial Advisor rather than one of the nationals who would likely be much more expensive.  Avoid anyone who is not independent (eg your bank advisor) who would not be able to say they are an IFA and would be restricted to only selling you their employer's  products.

A local high street IFA should be well used to dealing with lump sums of £500K.  A good way to find one is from family and friends or by Googling  for say 3 in your nearest town and then fixing up a free half hour meeting with each for you to explain what you want and they to explain what they can do for you and the cost. You can then chose the one you would feel most comfortable working with.

Thank you. Yes, as above we need to decide what we want, but have some breathing space to do so.

As an aside, and having never been in this situation before, I assume we will be paying tax on the interest next year if we simply have in savings accounts for a while. We already complete self-assessments for our self-employment (they are simple returns). We can presumably account for this ourselves or does it require specialist accounting knowledge?

But there wouldn’t be any tax to pay as the lump sum hits our account if I understand correctly?

No, it doesn't need any specialist knowledge - it's just adding up the interest from each account, and each bank etc. will give you their figure, either as a yearly summary or recorded on the account as it's added.

While I think it's a good idea to do that so that you know how much interest has been earned it shouldn't be necessary for tax purposes as all banks have to report interest to HMRC and they will calculate how much tax is due and inform you how it will be collected (often through a change to your tax code). Keeping your own records will allow you to check that HMRC have used the same figure in their calculation.

I think the individual has to report their savings interest if they fill a tax return. And needs to do a tax return, regardless of any other need, if the interest is over £10k. (Though check this!)

Yes, since they already self-assess, they will have to give their interest figure on the self-assessment return.

While that's true I don't see any sign that it applies to the OP (in fact, their modest income makes it unlikely that they SA unless that income is from self employment).

They said:
We already complete self-assessments for our self-employment (they are simple returns)

WishIHadKnownBetter

We do indeed each complete self assessments as we are both employed with self-employed side hustles.

I class our income as modest as neither of us earn the national average wage due to the nature of our jobs and location. We do not qualify for any income-based benefits but we have always earned enough to get by, just not living extravagantly.

WishIHadKnownBetter

Albermarle 

Sounds like a plan.
In the short term, I would not worry too much about paying some tax on interest.
Often we see on the forum, people seeing paying less tax as the priority, when the overall picture, which may well include paying some tax, is more important.

I am happy to pay tax where it is needed, but I would kick myself if we didn’t do the simple things like the ISAs or anything else obvious. I see this as an unexpected and un-earned windfall so anything is a bonus, but we do also want to be sensible if there are uncomplicated ways to save on the bill.

WishIHadKnownBetter

handful said:

I had a smaller (£285k) but equally unexpected windfall about 18 months ago, the main difference being age! I was 61 and the OH 3 years younger. It allowed us to retire earlier than planned but with regard to what we did with the money, we paid off the last of our mortgage, traded our motorhome in for a newer one without finance, maxed out both of our pension contributions for the year, maxed out remaining ISA allowances, bought £50k premium bonds and also put some into NSand I savings bonds in the OHs name to ensure my savings didn't hit the saving threshold. We also gifted a healthy sum to our adult kids and did a couple of jobs on our house. Congratulations on your windfall, like you say it will be life changing for you and it's incredibly exciting when it happens. We still thank our lucky stars and the feeling of gratefulness hasn't really faded yet. We have just returned from an 8 week jaunt in our motorhome, down to the Algarve and Costas. This wouldn't have been possible, at least for a few more years without the windfall. FWIW I didn't go to an IFA but did a lot of research both here and elsewhere online and I also have the benefit of one of our kids being in finance. good luck and most of all, enjoy it!!

Thank you, it sounds like the money is well spent and I hope your benefactor is looking down fondly (assuming it was an inheritance!)

We are not looking to do anything outrageous but we would like to take the kids abroad for the first time. School holidays have always been prohibitive, but even though I know we can now afford to do so, the prices make me feel uneasy, when we have previously only spent £500 for a cottage at most!

We would like to have more time to be flexible with our lives, so moving to part-time working would be ideal if we can come up with a plan.

WishIHadKnownBetter

kimwp said:

Personally I would look to plonk as much as possible in pensions (as on the pensions board) and ISAs this and next tax year as a first step. You talk about helping your kids. If you are happy to give them the money to do what they want with, there are various options for tax sheltering money for them too.

https://www.moneysavingexpert.com/savings/junior-isa/

Then have a read of investing demystified by Lars kroijer and ask questions on the investing boards. HSBC all world accumulation fund with iweb is where I ended up. If you are under 40, then LISAs are worth looking at.

Pensions is something to look at definitely. We both pay into our LGPS DB schemes, and apart from an old Prudential pot, we haven’t paid into anything else.

We do want to help the kids when they are older. They have junior ISAs with £2-3k in already. We would like to help them as they start their adult lives, but  will take some time to think how. One saves, but the eldest (17) is rather reckless,  spending money immediate with little to show. We are not willing to give large sums until that settles down. The Junior ISA already makes me nervous as I suspect it will become depleted very quickly once he has access. I have only been able to afford small savings for them, but have done so since the CTFs started and I feel sad that the eldest at least will likely fritter it away. 

Anyway, I digress. Neither child needs £££ yet, but we will have to plan how and when to do so in future.

kimwp

WishIHadKnownBetter said:

Albermarle 

Sounds like a plan.
In the short term, I would not worry too much about paying some tax on interest.
Often we see on the forum, people seeing paying less tax as the priority, when the overall picture, which may well include paying some tax, is more important.

I am happy to pay tax where it is needed, but I would kick myself if we didn’t do the simple things like the ISAs or anything else obvious. I see this as an unexpected and un-earned windfall so anything is a bonus, but we do also want to be sensible if there are uncomplicated ways to save on the bill.

I think what Albermarle is saying is that some people would rather put their savings in a 0% interest account and earn nothing on it, but pay no tax, rather than pay tax. Whereas it's more sensible to earn interest and pay some tax - because you are still getting the (larger) bit of the interest that doesn't go to the taxman.

Be aware of how the savings interest (or dividends) could push you over the higher rate tax threshold (£50,270) - the entire savings interest is added to your pay (minus pension contributions and charitable donations) to calculate where you are relative to the threshold. If dividends and capital gains are a consideration, probably best to post the numbers on the tax forum. And check out litrg, it's fab source of info about income and tax. (Second time today that I have recommended it)

SiliconChip

kimwp said:

SiliconChip said:

EthicsGradient said:

kimwp said:

SiliconChip said:

EthicsGradient said:

WishIHadKnownBetter said:

Linton said:

Only when you have a rough idea of what you want would it be sensible to consult an IFA as to how to achieve it.  Best to use a small local Independent Financial Advisor rather than one of the nationals who would likely be much more expensive.  Avoid anyone who is not independent (eg your bank advisor) who would not be able to say they are an IFA and would be restricted to only selling you their employer's  products.

A local high street IFA should be well used to dealing with lump sums of £500K.  A good way to find one is from family and friends or by Googling  for say 3 in your nearest town and then fixing up a free half hour meeting with each for you to explain what you want and they to explain what they can do for you and the cost. You can then chose the one you would feel most comfortable working with.

Thank you. Yes, as above we need to decide what we want, but have some breathing space to do so.

As an aside, and having never been in this situation before, I assume we will be paying tax on the interest next year if we simply have in savings accounts for a while. We already complete self-assessments for our self-employment (they are simple returns). We can presumably account for this ourselves or does it require specialist accounting knowledge?

But there wouldn’t be any tax to pay as the lump sum hits our account if I understand correctly?

No, it doesn't need any specialist knowledge - it's just adding up the interest from each account, and each bank etc. will give you their figure, either as a yearly summary or recorded on the account as it's added.

While I think it's a good idea to do that so that you know how much interest has been earned it shouldn't be necessary for tax purposes as all banks have to report interest to HMRC and they will calculate how much tax is due and inform you how it will be collected (often through a change to your tax code). Keeping your own records will allow you to check that HMRC have used the same figure in their calculation.

I think the individual has to report their savings interest if they fill a tax return. And needs to do a tax return, regardless of any other need, if the interest is over £10k. (Though check this!)

Yes, since they already self-assess, they will have to give their interest figure on the self-assessment return.

While that's true I don't see any sign that it applies to the OP (in fact, their modest income makes it unlikely that they SA unless that income is from self employment).

They said:
We already complete self-assessments for our self-employment (they are simple returns)

Apologies, I missed that as it wasn't mentioned in the OP and only came to light as an aside later in the thread.

ChilliBob

Premium bonds are worth doing imo - once you hajr filled the ISAs each for this year and next, you could out 50k each in bonds - yes, not the *best* rate, however, whatever you 'win' is a 'prize' and not tax liable. Useful if suddenly you have shed loads of interest coming on. UK Government bonds (Gilts) are also good for this too.

But yeah, stash it in ISAs, Premium Bonds then the rest in NS&I (same people who do Premium bonds).

As mentioned above, do you own research and thinoing before asking an ifa. 

Also lots, of YouTube channels to watch - most have some beginner series videos, or even lump sum ones. 

James Shack
Pension craft
Damo talks money
Chris Bourne (I think that's how you spell it)

Then you'll have some good ideas. 

Whilst you're children are teens, you coudl still ring fence 9k this year and 9k next year in a Junior ISA (cash or stocks and shares, probably cash most sensible if they are teens already)