Inherited 140k- what would you do? Get a little buy-to-let property or invest in S&S???

[icantwaitforsummer]

Recently inherited 140k, would love some advice from experienced people, what you would do with this amount?

For info, married mum of 44, mortgage of 300k, both have pensions. No real debt other than cars on finance. Have one ISA that is full and dabbled in shares with £1000 S&P 500 and Vanguard ETF global, which is doing poorly and at a loss.

Husband and I have been thinking about getting a little buy to let property for 200k, interest only mortgage and just manage ourselves for 15 years. This appeals to us as you can ‘see your investment’ in bricks and mortar, Dad was a builder so doing bits doesn’t scare us.

BUT I have researched and stocks and shares seems better for long term gains. But you invest and it just ‘disappears’ into the magic invisible investment world and that’s so scary.

Im not very experienced with S&S and my little play around investing £1000 last year hasn’t done well, I know you have to leave it for years, but I think I will be so stressed if it’s now 100k+ invested, I would be watching it all the time. I think I would find it more stressful than a physical investment or is that just ridiculous because other people do it?

Ah, yes. I read too quickly ..
Well in that case if it was me I would buy a buy to let property with no mortgage...there are still places you could still buy something for not much more then £125k.
And then invest the rent.

I wouldn’t get a BTL on an interest only mortgage. You’d be looking at a race between the money you paid in interest and the rise in property value minus 40% Capital Gains Tax.

Also minus tax on rental income, and taking into account the comparison the Manu would have made in S&S ISA or even fixed term high interest.

Things are so volatile atm, it’s hard to know for certain.

First thing pay off your car finance, that must be huge chunk of monthly outgoings. You have a big mortgage so if you want to retire you’ll have to overpay to the maximum each year. I’d put the money aside to do that each year in s&s isa rest in premium bonds . Then it’s there safe if you need it. I’m quite risk averse but then last year my DH was out of work for a year and if we hadn’t had a financial cushion we’d have lost our house. If your monthly outgoings are less due to cards paid then put that in private pension (maybe start one off with £10k each) at your age will make early retirement more of a possibility

Do you currently own and manage a BTL?

The days of it being a good investment for a small, one-property landlord are well and truly over.

• No tax relief on mortgage interest
• Most councils charging 2-3 x council tax on empty periods
• Landlords likely having less control over choice of tenants/ being able to recoup costs for damage or evict problem tenants in a reasonable timeframe.

If you self-manage the stress can be off the scale, and if you get an agent they will take 10-12% fee.

The only reason I would get a BTL now would be if it was as a short term interim period and I thought my child(ren) would want to live in it in the future.

(Except they didn't! 😩)

We ended up paying the £40K of capital gains tax instead!

What did you invest in?

If you've only had it a year it's been really volatile.

For best results you need to drip feed money in regularly. It helps smooth things out. When prices drop you can buy relatively more, when prices rise you then take advantage of having bought more when prices were low.

My S&S isa which i have had for 10 years nearly is up 22%. I'm not professional in any way but I started with £50 a month investing in the FTSE all share which is a tracker fund. Over time I've added different ones so I've got more global/sector coverage but really the OGs of the FTSE and S&P in the US are where you should start.

If you lose money on those long term we've got bigger problems than an ISA!

The problem you've got with S&S is that they don't pay out like that (unless you're in a madoff ponzi scheme). Unless you are prepared to let the investment sit for potentially a very long time and will only withdraw the money when the markets are up, you could end up with less than you put in. Dividends from shares are the same. This is not reliable money.

I would pay off the debts and increase your private pension contributions.

I work with a lettings agent as part of my own work and I would say that 98% of their tenants are fine and don't cause any problems.

Even if you want to manage it yourself onging, I would use a local agent to find you a tenant, and do the initial checks and also do the inventory of the house, take, and hold the deposit, as it helps you if you can be sure it has all been done properly and you know that the tenant has been given all the required legal info etc.

If you put it into S&S you need to accept that the value could go down as well as up. If you invest in a house, you should always have your money back, plus any increase in equity .

If you invest in S&S then do it via an IFA so that you invest in the best products. They will also do a risk assessment on you to see if you want to gamble or be safe with it.

You can also invest a max of £50K each into Premium Bonds. They may or may not win, so that is a gamble as well.

An IFA will help you best though if you do invest it.

Ok, but this is my worry, if I just focus on paying off my mortgage, which I could do with this inheritance and then the pension lump sum at 57. But then what? I’m 57 and have no income other than a small pension a year, about 15k a year.
If I invest in S&S, or a property I have an asset that will keep paying me as well.
That would be the dream, retire at 57, have a little pension coming in each month, mortgage gone, maybe a little 2 day part time job, but also a little asset or shares paying a bit more monthly, whilst I wait for state pension.

I'd be putting money at aged 44 into my pension, id be buying extra pension buy the bucket full for the next 3/4 years - that way your £15k pension can increase, you don't have to pay extra for the entire 13 years

because for every £100 you put into a pension it costs you £70 - not £100, so do it from your wages

Look for a decent return in a building society https://www.atombank.co.uk/savings/fixed-saver/ this bank is paying 4.4% on a 5 year account so £50k each and you'll see £24k back in 5 years - of course as the interest is pad monthly - this will offset your extra pension payments so £200 per month into your pension will cost you £140 and you'll get £200 interest per month each - minus the tax on interest. You would still have the £100k between you at the end of the 5 years. The reason I suggest putting in both names is £85k is the limit on safe savings etc. If your pension is less than your husbands then (which they often are) then make sure you pay in £400 a month to your pension for 5 years. You'll still have the £400 per month coming in to cover the shortfall in your wages

Id use the other £40k to pay som off the mortgage - reducing the payment will allow your finances to adjust to the extra on your pension

you already have savings as your ISA is full

Look at where the housing cycle is the moment- it's closer to the top that the bottom of the market- therefore I would stay away from property.

Not everyone will agree but the way I see it is having a roof over your head for the rest of your life is most people's number one priority, therefore it should be the asset you protect - i.e. my working down the debt.

Stocks are low at the moment but if you're prepared to pay the long game, they are likely to go up over time.

Maximising pension contributions is also a good idea.

Look at where the housing cycle is the moment- it's closer to the top that the bottom of the market- therefore I would stay away from property.

Id certainly agree the market is at the top and in real terms property is falling in value already

BTL is a mugs game, we can't wait to sell ours. Would have had better return in investments. Pay off as much of the mortgage as you can.

I don't, but I wouldn't recommend getting one with any mortgage. But if it's already paid for it could still be a good investment (stress Vs profit needs to be factored in) although yes I hadn't factored in CGT into my fantasy scenario!

I did a mix of putting into pension, overpaying mortgage, holidays, Share ISA, paid off car, put some in trust for the kids. I got divorced a couple of years later so do have a small regret about not ring fencing it, but never imagined our relationship would fail and it didn't feel right not to bring it into the family pot to make our lives better. I did use some of it just for me.

As an accountant, don't do a buy to let. It's not worth it for one property.

Don't buy a BTL, unless you plan on making it a business, adding multiple properties and becoming a LL as a full-time job. Having multiple properties should mean you can absorb the odd dodgy, defaulting, destructive tenant. Otherwise, steer clear. Even with the best tenants you're likely to have voids between tenancies, unexpected costs for repairs and replacements, all of which eats into any potential profit. Use your money for something else.

We currently over pay on our mortgage now so I reckon in 10-15 years we will see a very big chunk gone. Mortgage is currently 4.1% no overpayment charges. And with my lump sum from my pension I reckon it will be gone anyway when I’m 57.

Do you pay tax on the gains made on S&S?

Whilst I would worry and check a large portfolio a lot, I probably wouldn’t panic sell. (I would just have anxiety for 10 years 🤣) but in all seriousness I would be sensible, research a lot and put it in something relatively low/medium risk like more into the existing ones I have which are S&P 500 and more into the FTSE global all cap index.

My ISA is full this year so will have to wait for next year to invest more.

You'll be taxed on any income not earned through an ISA or premium bonds.

If you're desperate to invest rather than pay off debt, gold bullion is another option (no tax on gains on bullion, royal mint website explains how it works). Gold prices are v high at the moment though, so it's whether they are going to keep rising and by how much.

Are your cash ISAs and other savings/investments earning you 4.1% in interest?

Unless you can get more interest from savings/investments than you are currently paying for your mortgage, it obviously makes sense to overpay.

And put a good chunk of it into your pension as well.

(Agree with everyone else that BTL is a bad idea.)

Do you pay tax on the gains made on S&S?

yes, you pay tax on the dividend over £500 in total on your tax return and you pay tax when you sell the shares on the profit

I've started doing DRIP instead of getting dividend - not to get ride of the tax payment but to reinvest on shares that are doing well

"You'll be taxed on any income not earned through an ISA or premium bonds."

Not quite true. Everyone has a personal savings allowance, which allows you to earn a certain amount of savings interest before it's taxed. Off the top of my head, for lower rate tax payers it's £1000/year and for higher rate tax payers it's £500/year.

yep sorry my mistake, the allowance is so small I tend to forget.

I don't think 1K a year is quite what the OP is hoping for though.

It's important to be aware of it, though.

DH is a higher rate tax payer and I'm a lower rate tax payer. We have each maxed out our cash ISA allowance, and for the rest of our savings we have put most in my name (as I pay less tax on the interest) but we have still put some in DH's name - we worked out roughly how much so that the interest would be no more than £500/year.

The amount you put into S&S is frankly tiny, and, as others have said, the return comes after many years, not within a year or two. I had an equivalent windfall a few years ago, entirely invested it in S&S and watched its value slowly go down or just about stay even for the first few years. It is now beginning to perform quite nicely and is currently worth more than I could have made in any savings account. I haven't moved the money around between companies, that is just the nature of investing. You have to give it time.

100K to lessen your mortgage.

Who died? Do you want to spend some sentimentally?

5k on a holiday? New car, house improvements?

You didn't mention if you have children? Put some aside for fees, for their first house etc.

Money in a pension pot.

Buy to let - there was money to be made on a single one some years ago, but not now. You can really only make money when you come to sell - and then there's CGT to pay. It will come with work and stress - even with decent tenants.

You could buy a second nearby house as a doeruper. Buy cheap, renovate it then sell.

I've a BLT, bought it 18m ago, its a secure investment, no mortgage, bought with an inheritance, rented it out to a close family member to help her.

However, i would never have one if it were to a random tenant and i had to borrow money.

The tax is same as your marginal rate, for me, 20%, no NI, off set by any expenses, the certificates i need are less than £100 per year, insurance is approx £200.
CGT is still less than my marginal rate.

If i were in the OP's position, id make a down payment on the mortgage and have a bloody good holiday.

Buy to let property is a complete pain. Don't do it !