What would you do with this inheritance?

[EggInANest]

With great gratitude to my recently late Mum and Dad I am about to receive the proceeds from the sale of their house. Very sad to see the house go, we were able to keep it by taking care of them at home.

There will be about £250k - a lot of money.

What would you do in my circumstances?

I am not in paid work, lost job due to Covid and will receive state pension later this year.

I live alone in a small house, mortgage free.

Will get full state pension, and have a 'defined contribution' pension pot of about £320k. Was planning to start drawing this down when state pension kicks in. Currently living frugally on previous savings and redundancy money.

I have one Dd who will finish Uni this year and looks set to do OK for herself, but has a big student debt as I have been on low income and she has had full loan.

I might want to move house in about 2 years, my house is not ideal for growing old in, and I think I would like to spend this money, or a good chunk of it, on either a nicer house or a nicer area.

What should I do with the money in the meantime? I need different accounts to benefit from the protection?

I think I am going to put £20k in a Santander ISA before April 5th, and another £20k after. Then interest on any other savings accounts will be taxed - does the income from interest get added to my annual income from state pension for Income Tax purposes? So I should live off that before drawing down private pension?

Thank you anyone who has any thoughts.

(I will give some to a charity I volunteer with)

Pay off your daughter's student loan and use the rest to fund your move, with the remainder towards your pension pot.

I am making the massive assumption that you are in England here and her full loan was from Student Finance/The Government: in regards to your daughters student loan, don't use these funds to pay it off. She will only start paying the loans off once she's earning a certain wage. The payments she will be making towards the loans wouldnt show up on a credit check if she was applying for a mortgage, in the same way a regular loan or credit card payment would; there is little effect of having a student loan on a mortgage application if this is something you are worried about for the future. The loan will probably be written off before she's even paid it all down!
If she has actual bank loans or credit cards which she used to pay for her studies or suppliment her through uni that's a different matter, they won't work in the same way as a loan from the student finance/the government.
Overall though, advice from an independent financial advisor about how to make the money best work for you would be sensible here.

Thank you!

Yes - in England.

Agree don't pay off her student loan. An IFA is a good idea and make sure you've written your will and done both PoAs. Consider putting 50k in premium bonds - winnings are tax free.

Remember, you only pay tax on any interest above the Capital Gains Tax threshold, which is currently £12k pa and being reduced to £3k pa. That means an ISA may not be appropriate as they often offer much lower interest rates. There are fixed accounts offering above 4% at the moment. ISAs mostly seem to be offering a smidge over 2%, so half the interest when CGT (if payable) is a maximum of 28%!

is your daughter going to be entering the world of work soon? Might any left from your house move be able to get her on the home buying ladder?

I would go to a financial advisor for advice

I wouldn’t pay student loans immediately but I would 100% put aside some money for when she hits the threshold and needs to start paying it back. Even when she’s earning a decent amount the deduction of loans is painful. If you’re happy to gift her this money put it aside for her with strict instruction that it will clear loans at the appropriate time.

ISAs yes (S&S not cash), maximise pension pot, couple of medium term savings accounts (rates are a lot better now than they have been in recent years), if you’re not planning on moving immediately then move them over each year into pension as you like or put into a new home when the time comes. Premium bonds for a chance of prizes along with a short term saving account for the higher rates and easily accessible cash.

it kind of depends how quickly you wish to have access to the funds tbh

A £320K pension pot from a low income is really good going.

With regards to daughters student loans, once she gets to the salary where she will be repaying it is quite a depressing thing to see on your pay slip ech month.

If she doesn't ever get to a salary where she has to start paying it off then it wasn't worth going to uni in first place.

I’d help your child on the property ladder maybe 50k deposit

put your house on the market once you find another you want to offer on

then see a financial advisor

And do not forget to enjoy that money!!

go on that dream holiday buy that nice jacket, go to that nice restaurant

Thank you all.

@whattodo1975 My pension pot was built up because back in ye olden times , 35 years ago, when I bought my first flat buying interest only against an endowment or a pension was the thing to do. Then I moved to a re-payment, but kept the pension. Good thing I did because my employers only made the legal minimum payment at the last moment when employers had to contribute! I wasn't always on a v low income - never high, but very low since March 2020, and we did an in-year SFE assessment.

@MotherOfPuffling Eek - CGT? What would that be in respect of? I didn't know I would need to pay CGT? Or is it CGT that interest on savings incurs? I assumed that interest on savings was Income Tax.

I may well want to use the money within 2 years, to move, so not sure about S&S ISA? Santander are doing an 18,m fix for 4.25%, which seems OK?

@Quitelikeit - yes, I am going to earmark a chunk for Dd for a house deposit. Probably £50k. Which I can see will work better for her than paying off student loan.

And thank you - I am planning a little holiday. To remember M&D in a lovely place in which to reflect and remember.

Absolutely brilliant idea have a lovely time ❤️❤️

If you are on a low income you can get the £1000 interest that you get for being on lower tax rate and then up to £5000 more interest tax free if your earning are between £12570 and around £17570, check the exact amounts though but it is around that. It might be worth putting off drawing your pension until you spend some of the money if your income is low to make use of this tax allowance.

It's called Starting rate for savings

@EggInANest you have been given really incorrect tax advice above - CGT not relevant for income, and the amounts and tax rates also incorrect for investments (even if it was relevant).

For that amount, and given your age and upcoming retirement, please see an IFA. They will also be able to give some advice on the tax implications of their recommendations and will be able to suggest a local accountant if you need more specialised tax advice.

I would say - spend a little, save some, invest some.

I would absolutely put thw maximum into isa's. With the interest rates going up it will save you tax. You can also transfer from a cash yo a stocks and shares one if you change your mind later. You may also be able to put some into a pension if you haven't started any retirement benefits yet and based on earnings. Worth maximising any tax efficient products.

https://www.nsandi.com/
£50k in Premium Bonds.
Look at other NS&I accounts as there is no upper limit re the £85k Government protection. Even instant access is paying a decent rate of 2.85% on Direct Saver.
Put £20k in the highest ISA rate you can find and then repeat after 5th April for the following tax year.

I'd put it in a 2 year fixed rate account. Don't pay off your daughters loans, she'd benefit much more from a lump sum for a house deposit in a couple of years.

As long as you sell the inherited property which you are there is no cgt to pay.

Thank you @User6495321 and @Oodelest .

I think I will seek advice.

The tax info is interesting.

Also that NS&I is protected whatever the sum.

Find a high isa not Santander! Building Societies tend to be better. Also premium bonds are a good shout for some of it while you reflect

Do not pay off the student loan

What? No this isnt correct
you pay tax on all interest from savings and investment where you go over your personal tax allowance on all earnings (£12k or whatever it is) and your personal savings/dividends which depend on your income but typically £1000.
it does not have anything to do with capital gains allowances
capital gains allowances are used when you take out the CAPITAL not the interest or dividends so, that applies to the gains you made on your investments only, not income you took on them.

I’m retired Op.
I think a lot of people focus on pension income and not savings
once you get your pension, what you have as savings is it. If you don’t have massive pension income then you’ll not be able save a shed load more. Ever. You’re not going to see massive rises in your pensions - state pension is tripled locked currently but suspect that’ll be changed. And personal pensions are increasing slowly below inflation. I’m only retired 4 years but in real terms my money already doesn’t go as far as it did given inflation.

so, if your roof needs replacing where’s money going to come from? Do you have enough income to pay for 2-3 new cars (if you need a car) in course of your lifetime, do you have enough for the £80k care costs that government have kept saying they will bring in as a cap? (So to avoid having to sell your home). what about recognising weddings, births etc. what about covering your funeral costs, a new boiler especially after 2050 when all gas boilers have to be removed? etc etc. There are so many older people having to do equity release on their homes because they run out of money after finding their pensions don’t quite cover their incidental or one off significant costs.

I’d be investing it - using ISAs where possible over next few years, so that it can grow to keep with inflation (not currently but on average, not high risk ) and put some in other securities locked away at as high interest I could get (5 year fixes etc).

once I am older, if I build up enough spare that I’m creeping into IHT then give away a bit to whatever the need is. But I’d not give away money I may need later on.