Investing inheritance

[33goingon64]

I have posted in Property topic before and not sure I explained my situation properly so got a bit flamed. So I'm hopping over here for more general financial thoughts from anyone who's had a similar situation.

I'm 45, married with 2 DC. DH is a high earner and we are comfortably off. I am a very low earner (PT freelance in a not for profit sector). Last tax year I earned 12k. That's quite typical, so under the tax threshold. I don't envisage returning to FT work or moving to a higher earning sector.

I am due to inherit around 350-400k this year from parents passing away. I need to decide what to do with it.

Firstly, I am extremely lucky that due to DH's income we have no pressing financial problems. We paid off mortgage last year. We have decent savings including ISAs which we put the full amount into each year, including the DC. I know we are lucky. But I still need to decide what to do with this cash.

I have a tiny pension worth practically nothing. But as far as I can see the tax relief on pensions is not applicable to me as I earn so little. So it seems there's little merit in maxing out a pension.

Property is an option but I don't really have a desire to be a landlord and lots of people on here were helpful in pointing out all the pitfalls of property ownership.

So, I guess it's stocks and shares. Or is there something else to consider? How can I make sure I can still access the cash to put into the ISA allowance myself and the DC can put in each year?

I know I could ask an IFA but wanted to get Munsnet wisdom first!

Thank you for any thoughts you might have.

I was in a similar situation 2 years ago..

I went to my bank, they will give you absolutely shed loads of advice/knowledge etc and you can chose to go with them or not.

But it gives you a heads up, ime i found ALL IFA's would tell you so much before wanting me to commit & i went to loads.

Thank you for your reply. I think i will have to find a IFA. DH doesn't trust them - because he works in finance he thinks he knows it all already!

Tax relief on pension is applicable to you.
You have a salary of £12k so you can pay in £9600 to pension and get £2400 of tax relief.

If your salary is not exactly £12k, then assuming no pension contributions being made, you multiply income by 0.8 to get the amount you can pay into a pension/SIPP which has Relief At Source.

It would be a tiny bit of the inheritance being used though.

Shop around for financial advice. I would look at fixed fee independent advisers/planners. Some of them have podcasts and YouTube channels so you can get a feel for what they are like.

I'm not an IFA but have one. If they were asked, I think their advice would be given only after they had performed a holistic review of your entire financial position and you and your families desires for the future - they're pretty big on securing the next generations financial futures when you have enough for your own and if they're confident you won't run out of money in your retirement. It sounds like you do need an IFA who can encourage you to think v.long term and widely about your legacy to your family.

And yes I'm sure they'd have something to say about your pension situation!

Having said that, I'd also probably expect them to advise investment in global stocks across blue chip, SME and emerging markets funds with something like a 30%/30/20% split, and 20% cash/bonds/gilts as a war chest to use when markets fall to capitalise on opportunities - consequently they'd probably want to be retained on an ongoing basis to pounce and rebalance the portfolio at the right time.

They'd also utilise your capital gains allowances when transferring money from your 'general trading account' into S&S ISA's each tax year.

Thanks for those replies. I am a bit of a dunce about this kind of thing so an IFA will have to use words of one syllable and be very patient with me. Yes I am thinking about the fact I have two DC who may well want to go to uni and I'd like to be able to help them buy a property each (maybe pay the deposits). If I can persuade DH to trust an IFA we should probably go along together and talk about all 'his' money too (although it's ours I still think of it as 'his' and this inheritance as 'mine').

How can I be sure an IFA is really independent and not taking a commission to push certain products?

tax relief on pension is applicable to you.
You have a salary of £12k so you can pay in £9600 to pension and get £2400 of tax relief.
how do you go about getting this? If the personal tax allowance is £12500 each year?

@ivykaty44 When paying into a defined contribution pension, be that a personal pension, or SIPP, the pension provider will claim the basic rate tax relief on what you pay in and add it to the account. You don't need to do anything. The thing to watch out for is to not exceed your pension annual allowance, which is £40k gross, or your gross income if lower. In the case of income of £12k, that is lower, so maximum that can go to pension to get tax relief is £12k x 0.8 = £9600.

Yes I was wondering that too. It's not a salary either, it's a typical amount I earn through self-employed freelance work. I paid less than £300 in tax last year.

@33goingon64 Ask the IFA specifically about them being independent. Avoid anyone who is a Restricted adviser... they only tell you about products within their group, not looking at whole market.

This video may help for what to ask potential advisers.

@33goingon64 In your case the maximum that could go to pension to get tax relief would be 0.8 x your gross profits as declared on your self assessment. There is a section on the tax return for entering in how much you pay into pension, so HMRC checks.

How much tax you pay is not relevant for getting tax relief at basic rate. Someone with no income can pay in £2880 and get £720 of tax relief added.

What tax is paid becomes relevant for higher earners, who can claim up to 40% tax relief on their pension contributions. Someone with income over £90,270 can pay in £32k to pension and get tax relief on that of £16,000.

Thank you nannynick

If it were me, I would:
Put some in NSI Guaranteed Growth Bonds @ 4% interest - locked away for 12 months in your name as you will have a higher savings interest allowance
Put some in DH pension to claim higher rate tax relief (can carry forward unutilised allowance)
Put some in premium bonds if struggling for other ideas

One thing I learnt from my search for an advisor is not to use the recommendations from some IFA listing websites that ask for your location - you'll just get any old one that has paid for a recommendation from the website.

I used vouchedfor.co.uk - and filtered for the service I was after.
And spent hours reading the customer reviews - I mean hours! - to narrow down the IFA that appealed to me - in my case a straightforward and bullshit free experience routed in the real world that I to think I inhabit.

I also looked for same sense of straightforwardness and BS free tone in the IFA's blurb on the website. Also look at their pictures - e.g. I avoided all the stripy shirts, rolexes on display, and smug expressions!!!

I think a good IFA would offer you a free chat likely to be via ZOOM initially so you can see if your both suited

Finally I'd say in these ZOOM times, there's no need to worry about if the IFA is local to you - definitely go national if you find the right one.

Even though you’re low earner, you’re as well to put what you can into a pension, as you can draw down 25% of it tax free in due course. Top up your DH’s too, if allowance available.

£20k into an ISA, per tax year. If long term savings, go Stocks & Shares choosing a broad based low cost index fund, such as Vanguard global all cap. Repeat each tax year. Use your DH’s allowance too, if he hasn’t already. Future drawdown will be tax free. Balance can sit in a general investment fund, invested in similar funds, but with such a large amount may need managing to reduce your capital gains tax. You can transfer from the GIA to the ISA each year, so you’re still getting market returns rather than sitting as cash, just not the tax advantage.

£50k Max can go into Premium Bonds.

£9k pa to your kids ISAs. Depending on age and intended purpose, S&S will be good for long term, cash if they’re needing it for uni shortly.

This is an easy one for me. Interest rates are good especially fixed rate bonds for a year.

You can easily make a load more by putting it away for a year at 3.50 per cent. Then you still have the capital and interest.

How long would you fix for? There's isas at 4.11% for 3 years fixed - is that sensible, or too low?

where are you seeing ISA at above 4.11 interest rate?

Sorry 4.05- Leeds. Too long?