What to do?

30andcounting

I am likely to achieve an exit from a business in the next 12 months and the amount I receive after tax will be c£800K - I'm mid 30s, have a mortgage of £450K with very few debts, some modest savings and £125K in a SIPP. 

Can anyone help on the best way to allocate the money? I was thinking of paying the mortgage off completely, but not sure if that's the best use of the money to be honest. The house with worth ~£650K.

Any advice would be appreciated

eskbanker

30andcounting said:

Can anyone help on the best way to allocate the money? I was thinking of paying the mortgage off completely, but not sure if that's the best use of the money to be honest.

What other options are you considering?

Isthisforreal99

Is your mortgage on a fixed rate term with early repayment charges? What interest rate?

What next for you work wise - I'm thinking in terms of increasing your pension provision.

MEM62

Whether you clear the mortgage or not depends upon what your interest rate is.  If the money achieves a higher rate of return elsewhere than your mortgage is costing you don't pay it off.  I would certainly look at getting as much as you can into your pension.

Presumably at your age you will continue to work?   

30andcounting

Yes continue to work - no plans to stop that and not enough money to live off anyway through to retirement. 

Interest rate on mortgage is about 3.5% blended and comes up for renewal in 18 months. 

Currently pay in about £20K into SIPP per annum

30andcounting

eskbanker said:

30andcounting said:

Can anyone help on the best way to allocate the money? I was thinking of paying the mortgage off completely, but not sure if that's the best use of the money to be honest.

What other options are you considering?

Max out Premium bonds, S&S ISA and my kids S&S ISA, that covers about £150K with me and my wife. 

Isthisforreal99

30andcounting said:

Yes continue to work - no plans to stop that and not enough money to live off anyway through to retirement. 

Interest rate on mortgage is about 3.5% blended and comes up for renewal in 18 months. 

Currently pay in about £20K into SIPP per annum

Have you used your ISA allowance?

What's the ERC on your mortage if you settle early?

30andcounting

Isthisforreal99 said:

30andcounting said:

Yes continue to work - no plans to stop that and not enough money to live off anyway through to retirement. 

Interest rate on mortgage is about 3.5% blended and comes up for renewal in 18 months. 

Currently pay in about £20K into SIPP per annum

Have you used your ISA allowance?

What's the ERC on your mortage if you settle early?

I have this year but the transaction wont go through until after April.

About £10k ERC which is less than the interest I'll pay between now and renewal. 

El_Torro

Pensions and ISAs are two of the most powerful tools we have for investing for the future. Normally I would suggest paying into these over overpaying the mortgage. One issue with pensions and ISAs though is that you are constrained by how much you can efficiently pay into them. Having £800k suddenly dumped in your lap and with a £450k mortgage debt I think that paying off the mortgage entirely (while avoiding Early Repayment Charges) is the best way to proceed. 

Do you plan to work as an employee? Or set up a new business? Either way I would concentrate on putting as much as you can into a pension in the next few years. You can live off the £350k (or however much you have left after feeding your pension and ISAs) for the foreseeable future. 

Of course this is just my suggestion. Sounds sensible to me, though depends on what your goals are. When you plan to retire, how quickly you want to be financially independent, how much readily accessible cash you want to have, etc...

30andcounting

El_Torro said:

Pensions and ISAs are two of the most powerful tools we have for investing for the future. Normally I would suggest paying into these over overpaying the mortgage. One issue with pensions and ISAs though is that you are constrained by how much you can efficiently pay into them. Having £800k suddenly dumped in your lap and with a £450k mortgage debt I think that paying off the mortgage entirely (while avoiding Early Repayment Charges) is the best way to proceed. 

Do you plan to work as an employee? Or set up a new business? Either way I would concentrate on putting as much as you can into a pension in the next few years. You can live off the £350k (or however much you have left after feeding your pension and ISAs) for the foreseeable future. 

Of course this is just my suggestion. Sounds sensible to me, though depends on what your goals are. When you plan to retire, how quickly you want to be financially independent, how much readily accessible cash you want to have, etc...

Thanks - that's interesting and helpful. Yes plan to work for a decent amount of time, maybe 20 years further? I could end up quite easily going over the lifetime allowance on pension though if I go too hard with it now?

I am not setting it up, should be ok for a role for ~£150k p.a. 

InvesterJones

30andcounting said:

El_Torro said:

Pensions and ISAs are two of the most powerful tools we have for investing for the future. Normally I would suggest paying into these over overpaying the mortgage. One issue with pensions and ISAs though is that you are constrained by how much you can efficiently pay into them. Having £800k suddenly dumped in your lap and with a £450k mortgage debt I think that paying off the mortgage entirely (while avoiding Early Repayment Charges) is the best way to proceed. 

Do you plan to work as an employee? Or set up a new business? Either way I would concentrate on putting as much as you can into a pension in the next few years. You can live off the £350k (or however much you have left after feeding your pension and ISAs) for the foreseeable future. 

Of course this is just my suggestion. Sounds sensible to me, though depends on what your goals are. When you plan to retire, how quickly you want to be financially independent, how much readily accessible cash you want to have, etc...

Thanks - that's interesting and helpful. Yes plan to work for a decent amount of time, maybe 20 years further? I could end up quite easily going over the lifetime allowance on pension though if I go too hard with it now?

There is no lifetime allowance for pension I thought.