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?

What’s the rationale of putting it in a pension, given that means she can’t access it until ~57 (possibly older) and this could make it taxable?

Massive BLT 😋

I would pay down your mortgage, property prices are going in one direction and isn't up, same with interest rates.
Edit: I meant to say interest rates WILL be going up!

OP I maybe repeating others but here goes. NO to BTL, max your ISA's eg husband, children etc, top up pensions ( you can max £60k a year and top up for last 3 years) you'll like the compound interest when you retire. Premium bonds and as someone said gold albeit high at the moment. My husband recently looked into share dealing recently to invest £10k. Apparently the demographic with the best returns were estates in probate....so dormant! So PB it was. Good luck!

I've only read one page but I would also go down the 'pay off your mortgage'. We had an inheritance left to us and we put it towards buying a bigger home by the sea. Mortgage was already paid off.

How about put 50k in premium bonds? You'll likely win each month. Think about what your future dreams are. Invest for the future, but enjoy today. Who knows what's around the corner?

Ex landlord here too! Now I've started investing in REITs - Real Estate Investment Trusts (mainly the warehouse ones). I just invest a couple of hundred per month but they're holding their price well and pay dividends every 3 months.

Definitely not premium bonds. You can get better, guaranteed returns from regular savings.

https://www.moneysavingexpert.com/savings/premium-bonds/

Pay off mortgage or SS

Pretty unrealistic with £140k, yes.

Are you sure your pension pays £15k at age 57? Isn't that the projection for age 65 or 67?

Also, £15k pa isn't a "little" pension, it's pretty good. Is it defined benefit?

What I have done in the past when coming into money is pay waaaay more into my (then) occupational pension to keep me under the higher tax band, and use the money to supplement my income and make up the gap. Essentially swapping taxed income (and reducing my tax burden) for tax free income.

If you pay down the mortgage now, then you use the released money to save into a S&S ISA monthly. The drip feeding helps to avoid big changes in the markets, evens them out, that then becomes your income later.

I have c£140k in my S&S ISA actually, and it returns about £3k pa in dividends. More in growth. I don't actually take any of it yet.

I have £600k in pensions (drawdown would be c£18k) and a £6k defined benefit pension I can take at age 65 unreduced. I'm 57 and don't feel this is enough to retire, so I'm working one day a week and doing some freelance, and not drawing anything. But - this is your focus - I paid off my mortgage before I was 50.

I do also have £50k in premium bonds which give me a nice little boost most months, and cash ISAs that I just leave to grow.

Mortgage and pension (SIPP)

Regular savers usually only allow c£3k pa annum saved, plus you need to halve the headline rate for the real rate, and the returns are taxed where they are not on bonds.

You can get better supposed returns than premium bonds for sure, based on "average luck", but regular savers aren't it.

Pension is £60pa or your gross earnings, whichever is lower.

The first 25% withdrawn is tax free. So that's an advantage. Most people don't have enough pension provision, so that's worth looking at.

If you're a higher rate tax payer now and likely to be a basic rate tax payer in retirement, that's a net win.

But other than that, and ISA (and premium bonds actually) there is pretty much nowhere that returns would be free of any tax at all - except paying the mortgage down. And obviously ISA and bonds have limits to what you can pay in.

Pay of the mortgage 100%. Buy to let landlord here of 2 (was 3) properties. Don't do buy to let - the climate has changed (far more in tenant's favour, removal of section 21 etc). Only reason it works for me is I was a cash buyer on all properties. Interest only mortgage on buy to let is financial suicide now as far as I'm concerned.
Also, please stay away from stocks and shares. It would be mortgage and ISAs all the way for me - or invest the lot in an NS&I guaranteed income bond for a year at about 4.05% and you can get the monthly interest sent direct to an account of your choice. Your money is safe above £85,000.00 because the NS&I is run by the Government.

I was in the near identical situation a few years ago. I bought a one bed flat to rent out. (in Scotland though so only 70k). Used the rental income to top up my salary, allowing me to drop to part time while maintaining the same income. Done some house renovations. Got invisilign and will be having a breast reduction shortly. The rest in a high interest isa, accruing interest. Being able to go part time has really been life changing. It’s made everything in my life so much better, more time with the kids, childcare issues a thing of the past, not feeling burnt out and always chasing my tail, the whole family is happier.

I’m going to say this again, because I feel so strongly about it - you don’t need to talk to an IFA for this sort of sum of money if you’re willing to listen to the consistent threads of advice here and in the other places recommended.

A genuinely independent financial advisor will likely give you the same checklist of ideas as people here have, and the worst case is that you somehow end up with one who isn’t really independent, but tied to recommended products and services which are the best deals for them, not you!

But the tax benefit is minimal given its cash age already holds - it’s not like avoiding paying tax by putting it in, with the possibility of getting it out at a lower rate in further. Plus the limitation of the age limit, which is likely to move with the state pension age.

Just stick it in an ISA over the next 3 years between her and her husband - tax free forever, no age limit and no pension policy tinkering.

Putting money into a pension only makes sense if you’re getting the tax relief as you earn it.

I wouldn’t pay down the mortgage. I think people like the idea, understandably, of being mortgage free. But it rarely makes financial sense unless your interest rate is extremely high for some reason. If it’s lower than a savings account interest rate definitely don’t do it. A tracker fund (or spread across a few different ones to spread the risk) is an option but it’s a long term investment. The peaks and troughs should even out over time to give a decent return. That’s the theory anyway!

The mortgage idea doesn’t make financial sense when you can earn more money on it elsewhere.

You could try to invest a portion e.g £40k in stocks and shares and look at a high interest saving account for the rest that way your not risking it all

I'm sorry, but you have misunderstood how pensions work.

You can only pay in up to your earnings (or £60k), and you do still get the tax relief. (Note - you can actually pay in whatever you like, but only these amounts have the special tax status)

Your comments don't make sense because you don't understand pension tax treatment, so you need to look that up.

Also, ISA law is just as likely to be subject to "tinkering" as pension law is. Neither has any guarantees.

I have a teacher pension and will have been teaching 30+ years at 57, but I need to do some research into paying more into it. I don’t know if it’s worth having a SIPP and a teacher pension?

I’m a higher rate tax payer and the calculations online say £17k a year. So do I need to prioritise this or is it decent enough?

My ISA is 4.1% so weirdly the exact same as my mortgage, I hadn’t realised that.

I realise I have already messed up, as I have transferred the entire lot into a savings account this week and above someone has said don’t put more than £85,000 in the same account for the fcis protection 🤦🏽‍♀️ I knew that too and just forgot. But the app isn’t working today so I can’t get it out again.

I don't think any bank is going to go bust overnight to tonight.

Re the pension, is that £17k at age 57?

Re SIPP, you don't need one, via the teacher's pension you can pay AVCs (additional voluntary contributions) which go into a separate scheme, most likely lower fees than a SIPP, but separate to the main pension - it's worth looking into that.

What I would do is make the additional payments via salary, and calculate them to bring you into the lower rate tax band (give yourself an extra £1k headroom, so £1k under the higher rate tax band, to account for savings interest that may be taxable) then use the cash to supplement your lifestyle.

It doesn't have to be an all or nothing approach. You can do as above with, say, £12k pa (however much it works out), pay £50k off the mortgage to shorten the term (note advice above about divorce), put £20k aside each for next year ISA (maybe park that in premium bonds til April) and put some in a high interest account (if you can find one! - use this as the feeder account for the daily spending) and say £10k into an investment dealing account and buy a basic tracker.