£400k from share of house sale

[Eastie77Returns]

Following the sale of my late parent’s house I am due to inherit the above amount.

Current situation: mid 40s, 2 DC (10 & 12), no debt, o/s mortgage £320,000. I work FT and I am in the higher tax bracket (45%).

The only major expense I need to pay out for is a loft conversion which is due to happen next year. Other than that a replacement (second hand) car is probably the only other thing I might need.

My DC have each inherited money separately from their grandparents but I would like to set aside some for them.

I’m aware I’ll pay full tax on the interest on any savings (aside from the ISA) as I do not have a personal allowance. No issues with this whatsoever, however I’m trying to find an online calculator that I can use to work out what I will owe HMRC each year at different interest rates? I’m just generally unsure of the best way to save/invest this money aside
from putting money in an ISA. I have never had more than a small amount in savings at any one time.

I was connected to an IFA via unbiased and we had a helpful initial chat. He advised holding off on overpaying on my mortgage until my current deal ends in 2027 as the interest rate is only 1.33% so better to put the money in savings. Aside from that he suggested Premuim Bonds (I’ve read mixed reviews), the ISA and paying the max amount I can into my pension.

I’m due to reconnect with him once the money comes through but in the meantime I was wondering if anyone had personal experience of investing higher amounts over the long term and what worked out well?

No it’s a good point, thanks for mentioning. I am not married. I co-parent with DC’s dad who lives with us. I refer to him as DP but we have not been in a relationship for a long time. It’s all quite amical. He pays me a fixed amount each month towards bills etc. I earn about 4x his salary. I’m not sure what, if anything, he would be entitled to if he moved out. The house is only in my name and the deposit for it was paid for from the equity of the sale of my previous property. It is something to consider, I assume he would be entitled to something but it’s not a conversation we’ve had. He owns property in his home country (he is not from UK) with this siblings.

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I'd pay off mortgage and use the remaining to do loft conversion. And sash some aside for a rainy day.

One popular option for higher rate tax payers is to buy low-coupon, short-dated gilts on the secondary market to receive a capital gain on maturity. These are UK government bonds.
The dividend (known as the coupon) is subject to income tax, but when the bond matures at a set date any capital gains are tax free. A further advantage is you will know in advance precisely what coupon will be paid and also the capital gain due on maturity.

www.moneysavingexpert.com/savings/uk-gilts-lower-tax-savings/

My children were named as beneficiaries of a trust, as trustees we held back on paying it until they were ready to buy homes and it went directly into their purchase, providing a deposit and reducing how much they needed to borrow. Many people would squander at least part of a lump sum.

in your position I’d not pay off my mortgage but invest in gilts as suggested above by @freemoneyalwayswelcome so that I had the option of using the proceeds for reducing the mortgage when the current rate ends. Depending on the return that you could get you might find premium bonds are better, and I’d always put the max annually into a S&S ISA, though this option may disappear in future

I think that sounds like good advice from your adviser - I inherited £58k a few years ago (just as interest rates on mortgages were going mad), and my mortgage was about to go up significantly so I paid off the £44k balance. But whatever is the highest interest rate now would be good for you.

I think your IFA has given you pretty good advice, and if I were you I’d just do whatever he says as he sounds savvy and has made all of the comments I would have with the limited info here.