What would you do with 40k to make money?

[Kevinisnotacatname]

Name changed for this but been around here for yonks. I have no private pension (long story) and was due to inherit nearly 300k so it wasn't something I worried about. My dad then left nearly all his and mum's money to a woman he'd met 2 years before he died. I now have 40k total with the inheritance and a little savings.

What would you do to make this money work for you? I can't afford to make real risks really as this is all I have. I'm looking at starting a private pension now (I'm 48) but the most I can put into it is maybe £100 a month. I'm also wondering if something other than a pension might be a better option?

I've been googling so much I've confused myself so thought I'd post on here. I know I know, I should have started a private pension years ago but I can't turn back time. I don't own a home, I rent and I would not be able to get a mortgage.

@Samlewis96

Thanks for this hun.

Can I refer you back to the sentence to read it again... It's posed as a question.
. I don't know about these things but I do vaguely recall something about benefits and a cut off of 16 thousand?

It's a question, not a statement.

I think even if there’s only a slight chance of you getting a mortgage on what would be an asset to you, your children, and one that would hopefully appreciate in time, this is something to aim for. Hopefully your credit rating will improve in time. So a combo of savings - I think you’re only allowed to pay into one ISA per tax year? Could be wrong, though. I don’t see any value in paying into a private pension when you’ll be getting a public sector pension soon.

Some social housing tenancies now are only five year. They review your situation every five years and will ask you to move into private renting if you're earning enough to do so. I don't know how that works with savings.

My fear is that committing the entire sum, (note the misunderstanding of contribution allowances by previous posters) or a large proportion of it to the pension is that you will not be able to access it until at least age 55, and this is pencilled in to increase. The tax advantages are significant, but it can’t help you if a large expenditure requirement arises prior to you becoming eligible to take pension benefits.

Whatever money I have does not affect my tenancy.

Pension first, because presumably your state pension age is 68, and then it'll be very basic. And also an ISA. Personally I'd do a cash ISA with guaranteed interest. You can get about 5% these days, and you can withdraw it if there's an emergency.

Do you have the right to buy option? That might be worth punching some numbers on. 🤔

Surely her first priority is an emergency fund? She wont be able to access a pension until at least 55, and is of no use to her if she is sacked, or needs a new car, or is unable to work due to sickness beyond the timescale she receives sick pay? And what about accounts with a rate that will exceed the interest rate on ISAs when she has her annual savings allowance to play with?

I'm self employed so there is no sick pay etc so yes I need to keep some money back. I guess I'm thinking I should keep 10k accessible in some way

OP are there any self employment insurances you could look into which would cover you in the event of sickness? Might be able to properly invest that extra 10k then.

Self Employed Income Protection | Wagecoveruk

something like this, for example. I mean, I'm not saying that link is the best one to go for, but that's just one which came up from a quick google, and sounds pretty reasonable.

Tbh I'd rather keep some money behind as emergency fund rather than invest in income protection. I've very little history of sickness anyway and a general emergency fund might be better to cover all sorts

Mortgages aren’t like other credit facilities. Lenders can choose to ignore elements from a bad credit history - eg most disregard discharged CCJs. Start talkint to lendors and see what they say.

You only get tax relief on what you've paid tax on. The exception is the small amount you can put in and get relief on regardless of paying tax (as you described).

You can pay in up to 100% of your earned income but you will still only get tax relief on whatever was taxed.

So if you have earned 30k and have £12.5k tax allowance, you have £17.5k taxed income so you can put in 14k and receive £3.5k tax relief to make up the 17.5k.

You will only get £3.5k tax relief as that's all the tax you paid.

If that's OP's situation they're better off paying into the pension in stages to get the maximum relief. If it all goes in at once there will only be £3.5k tax relief no matter how much goes in.

@CagneyAndLazy thats just not true. If you make a personal pension contribution that is both within 100% of your earnings and within the annual allowance of £60,000 it is paid net and the provider claims the basic tax relief. Irrespective of whether you actually pay tax or not. One typical planning tool frequently used is for someone with zero income to contribute £2880 into a pension, which immediately grosses up to £3600. This is the maximum for someone with zero earnings.

If the OP earns less than 12.5k and the staff pension is paid via salary sacrifice I could see where you are coming from, and perhaps a personal contribution might be more efficient. However that is well below the minimum wage for full time and OP already said they warn c.£25k p.a.

Apologies @Bjorkdidit

Yes, I'm thinking about higher rate tax relief, @Everanewbie

@CagneyAndLazy HRT is typically reclaimed either via self assessment of by changing the tax code.

Yes, that's what I do, hence what I'm thinking about (and posting misleading things here!)

I make a point of paying in as much as I can get the extra 25% back on (via SA).

It's annoying that we are literally days into the new tax year.

Whatever you do, get the money into a savings account with a decent rate while you decide what to do with it longer term.

Chip & Tesco for example both have easy access app-based accounts earning 4.8 - chip pays interest monthly which would be about £150+pcm on 40k while you make a decision.

Once you earn over 1k interest you'll start paying tax on general savings accounts, so don't leave it too long.

Personally, I'm super cautious (so I'll never be rich) but I'd put 15k into a cash ISA, 5k into a S&S, and keep 20k in a decent savings account until next tax year when I'd repeat above.

I was alsi wondering if there anything that you could invest in now to be more energy efficient & save money long term e.g. heating/ windows/ insulation but being a rental property that's not ideal.
All I can come up with is an air fryer?!

16 k would only last a year or so paying private rent. And earnings is different from savings

You can't get benefits if you have over 16 k capital. But you are not going to be booted out of your house. Not everyone in social housing gets benefits. It's most likely higher in private rents as the rent itself is more expensive

money in cash ISAs can be withdrawn whenever you need it. It just means you lose a bit of interest if you take it out before the year is up.

presumably there'll some inheritance tax to pay too, or is it £40k after tax ?

@Kevinisnotacatname not sure if anyone has mentioned this but I found moneysavingexpert.com really useful for helping me work my way out of debt and to improve my credit rating so might also be worth a look for you.

This may be terrible advice but premium bonds? Then you may have the chance to win more? And they’re easy ish access for if you need to dip into them