Exciting inheritance! How to hold it?

[Lionessadmirer]

My lovely uncle has left me and my two brothers £450k each after inheritance tax (we have just sent off IHT400).

For my brothers this is life changing. And it means I won’t have to support them financially.

My husband and I have a specific long term financial ambition to do with our house. But until the time comes to action that, we don’t need the money. We are both busy working full time.

my uncle self-invested nearly all his money via hsbc and ii. Given what I say above, is the sensible thing to do the same?

lastly, how should isas be used here please?

thank you and please raise a glass to our uncle who lived well and died content.

I agree with this.

Trackers provide a balance within stocks and shares, but you also need a a balance within your personal wealth. We, like many people, have too much in property, which is underperforming in the SE. DH is close to retirement so, because his pension is also invested in the stock market, has recently moved his SIPP into bonds and similar, to hedge against a downturn. (Though support DS in putting savings into stocks.) We are also trying to build a cash buffer to allow for lumpy expenditure when we no longer have his salary coming in, while continuing to pay down mortgages.

In short:

• pay off debt (including mortgage unless it is a fixed term or it is an exceptionally low rate.)
• ensure you have a immediate cash buffer
• make full use of tax wrappers like ISAs and SIPPs.
• then decide the balance you want. Longer term savings accounts, bonds, shares. Even a bit of high risk "fun" like AIM.

I needed to learn quickly when I had to sort out my mum's affairs. It is not over complicated and I managed with a mix of This is Money and Martin Lewis. The Hargreaves Lansdown site has lots of fairly clear briefing, and provides you with an annual tax statement.

Someone like Schroeder's has to be very good indeed to outperform the market average when you include the need to cover their fees. The question is how do you sport a top performing investment advisor.

Or you could use Fundsmith as you investment advisors who seem particularly talented at choosing losers. What a fuck up they are and you’ll pay them 1% of your savings to deliver bugger all!
Relying on advisors is a risky business too - their past performance is no indication of their future performance. These guys apparently used to be good.
I feel for their investors - who having no clue how to invest, so they rely on the professionals, who have let them down for 5 years in a row and are still expecting loyalty. Their actively managed fund delivered 0.8%, while the market was averaging over 12% last year! They blamed passive investors for distorting the market and American companies - and despite their failure, they have not decided on a new strategy.

Don’t think your money is safe with an investment advisor who will take care of everything- even if they did in the past - they might turn out to be exactly like Fundsmith in the future.

Paying off your mortgage might be better achieved by saving in the stock market. Assuming you decide to pay off £20k a year.
My mortgage for example is tracker plus 0.14% - so 3.89% - so no exciting low cost deals for me!
Even at that rate it’s well below what you would expect from the stock market which averages 8-10% a year in the long term and invested through an ISA - you’d pay your mortgage off quicker by saving your overpayments in an ISA.

Of course many will enjoy the psychological benefit of owning their own home and not having a mortgage- for some people that’s worth more.

But again....long term.

The stock market has performed incredibly well over the last decade. Will this continue in the short to medium term which is where OPs interests lie? Many observers are suggesting a market correction is overdue.

I am suggesting a mix. And suggesting that reducing mortgage debt can be part of that mix. Worth noting money saved in interest payment is, effectively, tax free.

@NeedmoresleepIn terms of investment portfolios most home owners have the vast majority of their wealth tied up in property - paying off the mortgage is not creating more balance. I used ISA wrapper in my example because it was tax free. Paying off your mortgage by £20k a year versus putting that 20k into a stocks and share ISA will likely leave you worse off financially.

Yes but if you have a lump sum the amount you can put in an ISA is limited.

I acknowledge that I, like many others, have too much invested in property. However given people already have that investment, if, like OP you have money overpaying mortgage gives a guaranteed return and adds no more risk.

If you look at graphs going back to the 1940s you will see that the stock market ALWAYS goes up over time. There is short-term volatility and market corrections happen periodically but it will always go back up.

If you need or want access to your money in the forseeable future, you should make plans for that as you have indeed outlined you are already doing. But if you're in your 40s or 50s, you can afford to invest solely in equities because the idea that by your 70s you will have less money is just not what the last seven decades has shown us.

ETA: Your point about OP is fair - they may decide they need short term access to their money in which case my advice would not apply.

FWIW, the £550k we will pay in inheritance tax won’t be double-taxed. Uncle used his ISA allowances for many years, so he has never paid income tax or capital gains tax on the income or gains wrt the majority of the shares….

i keep trying to explain this to my mum…..

Such a shame that IHT is 40% and CGT is 24%....

The money you pay in CGT has been taxed already. The money you pay in VAT has been taxed already. Being taxed already is quite normal for many taxes. There is nothing unique about Inheritance Tax.

Tax is usually used to drive behaviour and encourage or discourage individuals from doing something. Dying seems a pretty low bar...

Your ideology doesn’t work. You’re de-incentivising people working to make sure their kids benefit from their hard work. People will always find a way round that and if it’s moving their assets abroad and not creating wealth, the country will be an entire underclass and will go to the dogs anyway.

To quote from another thread, the problem with socialism is that you eventually run out of other people’s money.

What behaviour is being driven by VAT?

@MasterBeth Not to buy something if the price becomes too high if vat is added. Eg private education.

Sure.

Changes to the VAT rate are used to drive behaviour change, i.e. encourage more consumer spending.

My point is that changing taxation rates and introducing or removing types of taxation often leads to behaviour change. It’s hard to class dying as a behaviour one can moderate in response to tax.

Dying outside of Britain would be a behavioural change driven by inheritance tax. I think we'll see people transferring their pensions abroad and dying abroad to avoid the newly introduced crazy inheritance tax rates on pension pots.

It may not be possible to avoid inheritance tax by not dying, but you can make a significant dent in your liability by spending more while alive.

Not that it's designed as a behaviour change measure - some taxes are, but some are simple revenue raising.

The idea is to combine revenue raising with an intended consequence- but we all know how that can so easily backfire.

Changes to the VAT rates wouldn't encourage more consumer spending. Reductions to VAT would do that. VAT is the highest it's ever been. So what behaviour is being encouraged?

A reduction is a change, no?

Changes in vat rate could be reductions. Scope of vat rate can also affect spending.

Of course it is.

But increases in VAT have been far more common historically than reductions.

What behaviour is a rise in VAT supposed to provoke?