Inheritance advice needed please!

Si_Clist

I am over 75 and my wife is just short of State pension Age.  We have an income of just under £15K a year made up of my State pension, Pension Credit Guaranteed Credit, and an annuity of around £700.  What savings we have are in Premium Bonds.  We do not pay tax.

My wife will receive an inheritance of £120K or so later this year, at which point we obviously come off Pension Credit, leaving us with an income of £9.9K.

Once her inheritance is in the bank, the plan at present is to immediately top up both our Premium Bond holdings to the limit, which will leave us with around £55K, then get an ISA each.  I believe we can each put £20K into one.  The balance of the inheritance (perhaps £20K or so) would then go into a separate account which we can draw on as required.

We own our own house, we have no children, we don't have a car, we don't do holidays and whatnot, and we are used to living very frugally indeed by present-day standards.  All we really aspire to is a decent mobility scooter, some minor home improvements, and some savings we can use in future to make life more comfortable in our dotage.

Given that both our brains tend to shut down when it comes to financial matters, I am wondering if there might perhaps be a more sensible use for this inheritance which would be straightforward for us to set up and would hopefully avoid incurring a liability for  income tax.

TheSpectator

Why Premium Bonds when there are no guaranteed returns?

Why an ISA when you are both non taxpayers and there are potentially better rates in non ISA savings?

Keep_pedalling

TheSpectator said:

Why Premium Bonds when there are no guaranteed returns?

Why an ISA when you are both non taxpayers and there are potentially better rates in non ISA savings?

With you very low levels of income you need to look at the starting rate for savings you don’t need to use tax free wrappers to avoid income tax.

https://www.gov.uk/apply-tax-free-interest-on-savings

When does your wife reach SP age? Has she got a forecast for how much she will get?

https://www.gov.uk/check-state-pension

Do you both have wills and lasting powers of attorney in place?

Albermarle

Presumably your wife will get a state pension soon and therefore the joint income will increase. With your frugal lifestyle, this would be presumably enough to live on without needing to withdraw from any savings regularly ?

In that case the important question is not so much PB's or other accounts, but what do you want to do with this money?
It sounds like you only have very modest plans for spending it, so there will be a lot left. Do you want to just keep it for possible  future care costs ? Do you want to leave money to someone, charity etc?

As said in the previous post, with your modest incomes you can earn a lot of interest without paying tax, especially if you split the savings between you. So no need to use cash ISAs, just normal savings accounts.

TheSpectator

Keep_pedalling said:

TheSpectator said:

Why Premium Bonds when there are no guaranteed returns?

Why an ISA when you are both non taxpayers and there are potentially better rates in non ISA savings?

With you very low levels of income you need to look at the starting rate for savings you don’t need to use tax free wrappers to avoid income tax.

https://www.gov.uk/apply-tax-free-interest-on-savings

When does your wife reach SP age? Has she got a forecast for how much she will get?

https://www.gov.uk/check-state-pension

Do you both have wills and lasting powers of attorney in place?

Not sure if you meant to quote my post but I'm not the OP.

Si_Clist

TheSpectator said:

Why Premium Bonds when there are no guaranteed returns?

Why an ISA when you are both non taxpayers and there are potentially better rates in non ISA savings?

(a) Because we've always done quite well with them and have never bothered to chase a better return?
(b) Because we thought that was what we'd need to do to avoid paying tax

Si_Clist

Keep_pedalling said:

When does your wife reach SP age? Has she got a forecast for how much she will get?

Do you both have wills and lasting powers of attorney in place?

(a) late 2027 and not yet but she will get one
(b) yes (mirrored) and yes

Si_Clist

Albermarle said:

Presumably your wife will get a state pension soon and therefore the joint income will increase. With your frugal lifestyle, this would be presumably enough to live on without needing to withdraw from any savings regularly ?

In that case the important question is not so much PB's or other accounts, but what do you want to do with this money?
It sounds like you only have very modest plans for spending it, so there will be a lot left. Do you want to just keep it for possible  future care costs ? Do you want to leave money to someone, charity etc?

As said in the previous post, with your modest incomes you can earn a lot of interest without paying tax, especially if you split the savings between you. So no need to use cash ISAs, just normal savings accounts.

We think we would do OK most of the time with 2 x State pensions, and as to what we want to do with the inheritance, the short answer is ignore it and save it for a rainy day after spending perhaps £10-20K.  

We one of us dies, everything goes to the other, and when the survivor dies, everything goes to the local hospice 

poseidon1

Si_Clist said:

Keep_pedalling said:

When does your wife reach SP age? Has she got a forecast for how much she will get?

Do you both have wills and lasting powers of attorney in place?

(a) late 2027 and not yet but she will get one
(b) yes (mirrored) and yes

Go online immediately and get a forecast for wife's state pension. If she will be noticeably below the current £221 per week, topping up her NI gap years could quite possibly be the most worthwhile modest investment she has ever made.

The fact that you are on pension credit suggest you obviously do not get the maximum SP. It is also possible for you to improve this even though you already claimed it -  see link below regarding how to avoid missing the 5/42025 deadline for filling in NI gaps back to 2006

https://www.moneyhelper.org.uk/en/pensions-and-retirement/state-pension/voluntary-national-insurance-contributions-and-the-state-pension#:~:text=Increase your State Pension with,pay voluntary NI contributions online

Finally improving your respective inflation linked state pensions may mean you will eventually exceed your respective £12,570 annual tax free allowances. Accordingly, ISAs ( as well as the premium bonds you mention) , should ensure your savings income/prizes never trigger income tax liabilities eventhough your pensions may in time do so.

Albermarle

Si_Clist said:

TheSpectator said:

Why Premium Bonds when there are no guaranteed returns?

Why an ISA when you are both non taxpayers and there are potentially better rates in non ISA savings?

(a) Because we've always done quite well with them and have never bothered to chase a better return?
(b) Because we thought that was what we'd need to do to avoid paying tax

Point a) Over many years you should get very close to the average payout, unless you are extremely lucky or unlucky.
Normally the average payout at any one time is a bit less than you get in a savings account, but lots of people like the fun of waiting for the monthly draw, so they are fine for many people.

Point b) 
Normally everybody has a personal tax allowance of £12570, which means you can can get that amount of taxable income before paying tax. Specifically for savings interest only you get an extra band of £5000 you can earn tax free and then you get another £1000 personal savings allowance. So for example.
If you have state pension of £11,000 and an annuity of £700, you can earn up to nearly £9000 a year in interest without paying tax, even when the savings are not in an ISA or PB's
If your wife has currently no taxable income she could earn up to £18570 in interest with no tax.
Remember those figures are only the interest, so you would have to have a LOT of savings to earn that much interest !

Si_Clist

This is all good stuff and I am very grateful to you all for your input.  Thank you!