Unexpected inheritance - what to do with it?

[dontpoisonthewaterfountain]

Been left an unexpected inheritance from a god parent, around 80-100k, probably closer to 100 but airing on the side of caution.

we are not investors. not knowledgeable in the area, never had the cash. how do we make best use of this money? I want to get it right for her and for us.

to give an idea of our sitch:
cash isa, a s&s isa each with around 15k (considered emergency money)

mortgage: owing around 450k on a 800k home. Currently at 1.8 but will increase in 2026.

Both employed. Both paying around 18% total into work pensions and have been since about age of 24/25. (I’m 35 DH is 40) Decent ish pot. Employed full and part time between us.

Household income pre tax approx 150-160k

DS 5&7 have a couple of grand of premium bonds each that we add to monthly.

My thoughts are to take 5 grand for a holiday (child care has had us in 1700/month choke hold for much of the last 6 years so no big trips have been had) and then the logical option seems to be to just pay the rest off the mortgage. Sensible? Or no?

What would anyone suggest in our position?

Open to any and all ideas.

No she will have pay tax on the interest at the higher rate, so needs ISA and premium bonds which are tax free

With a lot of mortgages you can only pay off 10% each year without incurring financial penalties. So I would phone your Lender to check and then pay off 10% if that’s the case and put the rest in a high interest savings account. In the next mortgage year you could pay off another 10% thus decreasing the amount owed ahead of the rate increasing in 2026.

Oh and treat yourself to something nice like a new car or holiday.

I received a similar sum when I retired. I paid off the mortgage - which wasn’t as huge as yours! Then we had lots of jobs done on the house to future-proof it. The rest went into high interest savings accounts.

you have very little tax free savings allowance so my approach would be £20k each in ISA for this tax year , £50k in a premium bonds account and rest on a holiday. If the bonds aren’t realising enough return pull out into 2 new ISA’s next tax year or pay off mortgage

I would set 10% aside for fun whether it's holidays or whatever I would also set aside enough to buy your next car etc for cash then high interest savings often you get better rate idf fix for 1 or 2years. When you remortgage in 2026 consider what sum would get you into a better Ltv rate as often a 35%deposit will get a better offer than 34%deposit but 36%probably wouldn't make much difference but 40%would so myself if 80k 8k for holiday ,20k for next car, 8k emergency and that leaves roughly 44k and see if it worth reducing mortgage when rate expires. It depends on whether current rate of interest is greater than best savings accounts with recent cut of interest rate 4.8%-5%is what you'll get.

You're on an investments board.

Do you go onto the boards about gardening and tell people with gardens they're showing off? 🤨

Just noticed you owe 450 on an 800k mortgage getting the mortgage below 50%of the house value would open up better deals next time you look in 2026. By 2026 you will owe less than 450anyway so won't need exactly 50k to get below 400k

It's nearly always better to pay off a mortgage than to put into an interest account, because of the effect of compound interest. There are online calculators that can compare the two options for you.

I'd put 70% into paying off the mortgage, 20% into savings and 10% into holidays/big purchases you have been putting off/home improvements. If your house is suitable for solar panels or a heat pump that is also a good call.

In response to replies on my previous post, 4-5% is about the going rate for an initial rate mortgage product atm so you'd need to match that, post tax, for an investment rather than debt pay-down to be advantageous. You could get a 2 or 3 year deposit account for similar rate but would pay tax on the interest. Forecast longer term returns in terms of stocks and shares atm are c4% in real terms, clearly this is anyone's guess but I still believe debt pay-down is the best use of funds. Plus it gives you more debt leverage in the future should you need it as you have a greater unsecured asset base.

compound interest applies to savings too, currently you can earn £1000 interest a year before tax; on an account paying approx 4.8% this would be around 20,000 invested anything above 20,000 will have the interest taxed, if OP is still on a low fix of under 3% then she will do better with savings until 2026, however if OP is on roughly equal or only on a marginally better interest rate like 4.2% on mortgage and 4.8% on a savings account then paying off a chunk of the mortgage would be wise. however it is never wise to pay off so big a chunk of the mortgage so it leaves no emergency fund as then when an emergency arises so you need a loan at 7-12% instead of using some savings

Why would it be a brag? OP has picked the appropriate investments board to post on. She has asked for advice on what to do with a large sum of money. Why are you even on the investments board if you think it is people bragging ? You've made yourself look a bit dim.

I would want to keep maybe £20k to add to your emergency fund
We put £40k into an emergency kitty, despite having no mortgage/decent jobs etc.
Worth it for peace of mind and I cannot tell you how glad we were when covid hit.

Has anyone mentioned paying an extra lump sum into your pension if possible? You will get tax relief at your marginal rate, so will probably be worth much more in the long term than 4% savings rates etc.

£5k on holiday sounds lovely, you have 1.8% on the mortgage till 2026 so put it in a high interest ISA until then and then pay it off when you renew to reduce your mortgage, don't pay off mortgage when you could make more interest in savings even after tax. I would only pay off the mortgage if I thought I was so bad with money I'd only spend it unless I got rid.

Obviously pay off any credit card debt and other unsecured loans first if you have any. Don't bother getting an IFA for £100k, it isn't complicated. Xx