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)

Hmm, not entirely true. Only if she sells now at same value as it was valued for probate
if she inherits it, and it rises in cost even over a year or 2, based on probate valuation, she is liable for capital gains theoretically. How much depends on rise and limits on capital gains,

One other point Op….if you take your pension pot immediately, and keep the savings, you may loose out 2 ways. BUT do please talk to an IFA to check your circumstances

ways you could loose out

1. if you delay draw down on your pension by taking income from non pension sources, you are in effect keeping your pension like an ISA. You won’t get charged on capital gains or income tax on growth it makes between your retirement and when you take it finally. Some pension companies may also have bonuses with your scheme that could rise if you delay taking it beyond state retirement age. It will take you years to get your inheritances into ISAs to protect form capital gains and income tax £ in effect you’ve already done the tax orotectionnbit, so continue that and use your unprotected money to fund your pension income for now
2. if you pass away before you are 75 with an “uncrystalised” pension pot (eg one you’ve not yet converted into pension and is still in an investment pot ) this can be passed on IN FULL to your beneficiary’s pension pots outside of IHT . so doesn’t matter what sum is , and they’ll get a sacking boast to their pension. If you’ve got a house and now a pension pot worth 375k, plus this inheritance and single you may be liable for iht (depends if widowed)so this is a good way to legitimately make use of allowances for IHT to help your daughter in future if you do die prematurely

as I say you do need to talk to IFA for your circumstances. But reading it I’d say it’s likely you are better leaving your pot untouched for now, and using your inheritance as a draw down pension income,

@Whiteroomjoy Thank you! It did seem to make sense to me to spend savings cash rather than pension, especially as pension value has dipped over the last year, so draw down will crystallise loss there.

And my house is in London so house value + inheritance savings (and I do also have some rainy day savings) would go into the current IHT threshold. Not widowed, so my allowance only.

Good point about boilers, new car (s) etc.

The house is sold for less than it was valued at probate thanks to Liz Truss et al.

@aramox1 I found the Santander on the Martin Lewis MSE website as best ISA. 4.25, would love to know if better ones are out there!

Thank you all for so much to think about.

Just another echo saying do not pay off the student loan. It’s one of the cheapest loans anyone will ever have and if for some reason it can be repaid it will be written off. There are much better uses for the money.

Ah sorry about the isa/ that's a good rate much better than usual. Must be new!

Put £50k into premium bonds in your dd's name for her house deposit. She may well win a larger amount which she can put towards her house purchase.

Find out how much you'll need to pay in capital gains tax if any.

That’s true, last 18 months have wiped out some value off my investments and is typical…holding out should help BUT do get some financial advice. My experience is spending money on independent and qualified advice will save you a few thousands

She may start on a pay scale below the level for payback. She may in 5 or so years hit the level and start paying back. She may then shooed to take 10 years out or go part time to raise a family resulting in her oat dropping below the threshold. By the time she returns to full time work, she'll only have 10 years so so of paying before the balance is written off

Hi OP, sorry youve lost your DM and DF to receive the inheritance.

But look, no financial adviser on here will tell you exactly what to do with the money without payment, so pay c£500 to a qualified FA with good reviews and recommendations and let them do the hard work for you.

Good luck.

Some great tips already op.

As for your dd, 50 grand deposit would be amazing.
For her can you put 1 grand into stocks and shares isa, index tracker..
1 grand into cash isa.
1 grand into normal bank account and grand into premium bonds.1 grand into a sipp, self invest perosnal pension.
That would really set her up and show her the difference between stocks investment etc and all the rest? 5 grand would set her up esp the sipp because she can't touch that until she's pension age.

How I wish I had an effortless lump sum awaiting me now from a sipp from my parents. Also once these things are open it makes managing money so much easier.

For you I'd do same for re getting some into stocks isa to grow as pp person said.

For tax free as you know its 50 grand pb and 20 grand isa.

Miss maples great idea about dd cash for deposit into pb.

For me I'd use 50k for business investment and budget for the next couple of years, then the 200k towards bills, savings etc. Oh and trust no one that I got the 250k

Can I just ask why? I thought that interest accrues from day one of the loan so best to pay off asap?