Can anyone help - £100k - best use of it in our circumstances?

[SamanthaJones]

I've name changed for this but I am a regular, I hope that's ok.

I'd be grateful for any views - we recently inherited £100k and aren't sure of the most sensible thing to do with it. (We will get some IFA advice too)

We have a mortgage which is interest only, with repayments of £700 a month

We are about to convert it to repayment, which will be 1,900 a month

We already have another buy to let house (with no mortgage) which gives us a rental income of £625 a month

We are considering buying another with the £100k which will give us a rental income of £550 a month

The total rental income of £625 (that we already get) + £550 (if we bought new place, cash) + the £700 we already pay would be = £1850 so effectively we could convert to repayment and rental would cover our mortgage (we could cope with the odd period unlet)

Or we could just pay £100k off our mortgage

Or we could have an offset mortgage, not sure about that

Thanks for any advice anyone can give.

I would pay down your mortgage on your home and mortgage the rental with a BTL with GBP50k and buy a 2nd place.

Any cash you are saving should go into ISA's if you are not already doing that. If you are making a paper gain I would put have both rentals in your name while you are not working or if a loss put in Dh's name so his tax bill is lowered.

When you come to sell move into the rental properties so they become your primary residence. No capital gains are due upon their sale.

two points:

1. gross return is 6.6%, factor in 10% void, £1000 pa maintenance (average over long term) and £1000 pa if furnished, gives only net 5% unfurnished and net 4% furnished, not a great deal if no capital gains expected.
2. there is no tax benefit to interest only on BTL. you will get tax relief on the interest element regardless of whether interest only or repayment.

I would say you need to be as tax efficient as possible. I guess you must be paying a lot of tax on your Buy To let. If possible I would look at paying a big chunk off your home mortgage, hopefully this will enable you to mtge the Buy To Let to the max. I'm pretty sure this will save you a lot of tax on your rental income, and increase your net income. The aim should be to clear your home mtge and load up any BTLs as much as possible. The interest on BTLs is tax deductable right up to the initial purchase price.

I'd also consider putting your 2 x £10,680 ISA allowances into a stocks and shares ISA. Shares are a gamble but then so is BTL. and shares look chap at the mo. If you stick with UK and a reputable fund manager like Invesco Perpetuals UK Income run by Woodford you won't go far wrong. He was one of the few who saw the banking problem and avoided them. I think it will pay around about 4% pa tax free. You can draw the income or roll it up. Whatever you do you don't have to declare the income on your tax return and it doesn't even count for calculating Tax Credits / Child Benefit (please double check this for CB with the changes for 2013). You never know in 10 years people might be talking about how they made a mint in shares just like they do about BTL. ISAs are arguably as beneficial as pensions as all income or gain from them is tax free!

Or do a self select ISA and have a bit of fun choosing your own stocks. You might benjoy this. Make sure you diversify accross different sectors. Personally I'd go for the big UK companies with a good dividend history, and ones that you know a bit about and seem well run, with low pe ratios and aim to keep them for mid to long term. I think Vodafones forecast yield is over 7%. Glaxo, Tescos, Diagio, Pearsons, Shell, Reckit, Tate all seem to fit the bill in my opinion. Banks and retail i9n the current environment seem risky to me but that's just my opinion. Again spend the dividends or roll them up.

And what about taking the family on that really big cruise ship, with the ice skating rink, the climbing walls, surfing pool, cinemas AND childrens clubs!

Please do your own research, Ellie x

could you let the home that you are in and use the the 100k as deposit on another home and keep the existing on interest only therefore get the tax relief. Personally I think you need independent financial advice from a reputable broker.......where abouts are you?