What to do with inheritance?

[H0TK]

Inheritance of £75k

So we have £100k left on mortgage and 15 years.

I have a pension, only 40k

Husband has no pension, runs his own business

Would you pay off some of the mortgage? Or start a pension for dh? It's his inheritance

Perhaps speak to an IFA? Or possibly your DH's accountant. They will have a better grasp of the most advantageous and tax-efficient options available.

50k off mortgage, 30k into DH pension. 20k for 'fun' ie something you would like maybe a new car/home improvements/holiday. With inheritance like that I'm sure it was someone close that passed away so I'm sure they would like you to do something nice with the money as well as sensible. Sorry for your loss.

How old are you both?

Oh yes! I'm 49 and he is 54

@Sockmate123
Your sums are off
£50k mortgage, £15k pension,£10k for spending; holiday, home improvements etc

Doesn’t add up to 75k?

I’d say it depends how old you are and your tax situation.

i get better interest on my isa than i pay on my mortgage, so I’d probably invest there. If I pay higher rate tax at work I’d look into increasing pension contributions.

a financial advisor is a good idea.

That's 100k!! But yes, I can apply the percentages I guess

We earn £30k each

I'd pay off most of the mortgage. You can then save towards the pension with reduced monthly payments.

This is what I was thinking

As your pensions are poor to none I'd prioritise that because at your age you have no time to waste and a big injection now will be better than drip feeding. But as a PP said, maybe try to get financial advice on this as it's such a large sum.

I would want that mortgage term reduced if he is 54 and still has 15 years left on the mortgage.

My priority would to overpay the mortgage and maybe use a small amount to start a pension for him too now that can start earning some interest. Check your mortgage early repayment charges. We can overpay 10% but on the original amount not the current balance. It depends who you are with and the specific terms of the mortgage.

There is a wonderful feeling that comes from knowing the mortgage can be paid off early. Mortgage first in case he has to retire early for health reasons.

I’d be trying to get the mortgage down as it must take a sizeable chunk of your income, especially considering your ages and the long term left.

You could do a rough calculation yourself

• get a spreadsheet and just list all the years between now and retirement ( rather than messing with compound interest calculations ) and run through alternatives to see what it will cost you

Money in pension should grow at a roughly known rate and mortgage current interest rates : early redemption costs are known

So which is better - pay off mortgage and invest that money each year into a pension or pay all to pension and what do you lose out long term from spending sone now

It will probably depend on what mortgage interest rate you have - if they are low pension is likely better

The mortgage we have states we can overpay any amount and reduce it etc. we are not on any fixed package

I calculated that the interest we would save if we payed off £50k of mortgage was like £25k!!

I've read that you'll earn more in investments that you'd pay in interest on the mortgage, so paying off mortgages often isn't the best idea, although it obviously depends on your mortgage. If he has no pension at all I'd definitely use it to start one, just keep a bit for something fun. What are his plans re: paying for retirement?

He plans to sell the business

And if we reduce the term it's going to save £40k in interest. I'm amazed. Is that right?

think I'd pay down the mortgage (maybe think about ring fencing/legally protecting this contribution as its a big amount) by say £50k
Spend up to 10k on a holiday/car/home improvements and stick the rest into an ISA/premium bonds or something
Just to stress I am not an IFA in any way shape or form, but on a salary of £30k putting anything into a private pension is going to have a tiny impact on what will be received at 67 (or whatever age) the only way of making it anything like meaningful would be to wallop the whole lot into DHs pension and then continue adding at a high rate until retirement and that would be madness I feel.

Most business owners do, but has he valued the business without him in it?

Get some advice. You need advice to understand the relative tax benefits of putting it in a pension vs. the interest benefits of paying off the mortgage.

D*oginatent
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I didn't realise it was valued differently without him in it. It's all such a minefield. Thanks, something else to consider. I do worry so much that we will have nothing when we retire.

Do you have any other debts or savings, what are your current plans for retirement?
I would prioritise a pension for your DH (and possibly for you) because it is tax efficient, ie your contributions are bumped by 25% if you’re a basic rate tax payer. e.g open a SIPP with £800 and it will be topped up to £1000. Your DH is close to retirement age anyway so the money won’t be locked for decades.
Once you reach retirement age, you can take a 25% tax free lump sum to pay off the mortgage. An accountant should be able to advise how much he can contribute in this tax year (depending on his earnings).
Using the inheritance to pay off the mortgage sounds good but it doesn’t offer the same tax efficiency.

It completely depends on what the business is. If it's something online or he has staff, it's unlikely to be much different.

It's something I've come across with a few small businesses. If your plan is to sell up, you need to be planning for it 10 years ahead.