Inheritance question- what to do with it??

[sundaysundaysleep]

Apologies if this comes across as insensitive to anyone with money worries but I can't speak about this to anyone in real life (other than DH) and thought this was the best section to ask this question.

I am due to inherit around £250k after my remaining parent died this year. It was a horrible ending and I am grateful that this money has been saved and passed on despite the awful circumstances to receive it. I therefore want to consider how to use it in the persons memory but also use it to live life and connect with adventure, experiences, life and living!

Our mortgage is already paid off and I don't have any debts (like credit card or car etc). A chunk will go to our teen kids for when they are older, and I will probably put some in my pension but what else will I do? We are def going to go on an amazing holiday at least.

WWYD? Invest? Splurge spend and enjoy? Move house? Buy a buy to let / holiday home?

Any ideas welcomed! Thank you

I invested 90% mine and will retire at 55 in three years, it will subsidise my NHS pension which I can claim without penalty at this age. DC2 also finishes uni at the same uni. We have no mortgage.
Then I'll do what I want. Hopefully lots of holidays.
We did see an IFA.

Student loans are more expensive than they used to be because the period before they're written off is longer, and I think the threshold above which you start to repay is lower, now it's about £27k, which isn't much considering NMW is £22-23k depending on hours worked.

So it's probably worth checking if that assessment has changed. It comes down to whether or not you'll pay more than the loan amount, because the interest could be huge. But you also need to take inflation into account as the interest is matched to the inflation rate, so if your salary goes up at the same rate as inflation, this effectively neutralises the cost of the interest. Plus the money is usually better used as a house deposit rather than paying student loans.

The ones who'll probably benefit most from not taking out student loans or paying them off early will probably be 'medium' earners. Low earners won't get anywhere near paying them off and high earners will pay them off quickly, so pay less interest. But medium earners will take decades to pay them off and pay a lot of interest in the meantime. So for future students, paying the loans off might be worth it.

But most parents don't pay six figure sums for their DC education. I think it's 7% who go to fee paying schools, so far from the norm, and it's probably only a tiny minority who pay all their DCs fees, living costs and studies in the US.

As for what's best for the OP, as there's still a few factors you don't mention (your pension provision, whether you want to move house etc) the financial flow chart will help you get your thoughts in order:

https://ukpersonal.finance/flowchart/

OP: look into the whole system for Student Loans. Loans are means tested on parents’ income, with parents expected to top up, the level dependent on income. They get the loan for fees, but can only get a loan for a tiny amount dependent on parent’s earning. And even on an average / moderate salary the top up is considerable. It isn’t our offspring ‘getting things without working’, it’s the current system that supports students.

So with a hefty chunk passed to you ‘without working for it’ I would make sure you have enough set aside to support your kids higher education. Since your home / pension needs are secure.

I would also make the best use of a big chunk towards my own retirement.

On £250k at current interest rates you can me making £12k interest, but unless it is in as ISA you will pay tax on all but £1k of that. Premium Bond winnings are tax free. If you need places to save it while you plan. Also, don’t put more than £80k in any one bank. (The amount covered by the protection scheme is a bit higher but you need to leave room for growth).

If mortgage free I would put into premium bonds for you all

Blondes loves blondes and the monthly thrill of what if ........

Obv an account paying 5% would give you guaranteed interest

Even if you have there did a few months while decide

Any winnings are tax free unlike interest in the bank

What I did (because I am in the same boat)

Was put £20k in a S&S ISA this year and another £20k in the next tax year. (April fy 23/24)

If your marriage is solid give your DH the same. That's £80k done with about a 4-5% yield... I will use this for kids at uni / top up to pension / something in the future.

I would take the family on one AMAZING holiday (£10-20k) something like Japan, Disney if its your thing, safari....
Safari / game holiday is mind blowing I went on one"by chance" and it was one of the most amazing memorable things I've done.

and I used the remainder to buy a holiday home abroad (£150k).
I currently let this and it yields €10k euros per year (after running costs) which pays for our big annual holiday / kids costs and when the kids go to uni /need deposits it will be sold and split.

its been a couple of years and I'm happy with my choices.

As your kids are older possibly ISA for them Vs holiday house but mine are babies and I wanted to retain full control. There is no "take backs" with kids ISAs and you never know what the future holds.

OP - I understand where you’re coming from, but circumstances are drastically different from when we graduated. I graduated with no or minimal debt (I had a grant) and could afford to buy property in London just a few years after starting.

That has changed. With no parental help your children are likely to start work with £50k debt at a high interest rate. Once they earn just above minimum wage, their take home salaries will be reduced to pay back the loan.

And graduate salaries have not kept pace with inflation, so saving for a deposit will often take them till mid 30s. They are much poorer than our generation were at the same age.

We intend to help our kids with uni fees and a deposit as soon as possible. But once they have that start, then they need to manage on their salaries. They will still have to pay a mortgage and manage on what will relatively low wages.

Your windfall puts you in a position to give them a great start in life and totally change their life chances - as well as have holidays/great retirement. It’s a fantastic position to be in.

What's with the MN obsession with BTL? As an investment, it's got poor liquidity (takes time to get your money out, should you need it), high transaction costs (stamp duty), uncertain returns, and a significant and increasing burden in terms of the demands of being a landlord. There is a reason why professional landlords are selling up and making alternative investments.

I'd consider consulting with a IFA who can work with you to understand your goals, time horizons and risk profile, and recommend a balanced strategy accordingly.

Sorry for your loss.
Speak to an IFA, first checking what their fee structure is, some are £££.
I wouldn't put a penny into BTL these days, the rules around it all have changed and the margins are much smaller.
If it was me I would be paying into my pension.

I know.

Plus MN hates landlords, scum of the earth profiting from other peoples' misery. Yet any time anyone asks what to do with a sum of money, there's always endless recommendations to 'just get a BTL' as if it's an easy way to guaranteed riches.

If you are a higher earner, look about putting as much as you can of the max £60k into your pension this tax year and next. You will get 40% back in tax refunds so it costs you much less- so roughly £120k in the pension pot costs you £80k. It’s worth it even if your salary goes to zero. Same for DH.

Then set aside £120k for kids house deposit/uni. Put it into a stock market index tracker - ISAs as much as possible but not in their name.

And £50k for fun/renovations etc

I agree with all of this. We have inherited from a parent and our goal is to equalise the opportunity our children have as young adults with what we had at a similar age e.g. a limited amount of student debt, able to buy a modest 'starter' home within a few years of graduating.

Only once we're satisfied that we've done that would we even consider spending any of the inheritance on ourselves. I just cannot fathom the mentality of parents who enjoy spending money on luxuries whilst watching their adult children face struggles that they didn't have to.

OP, rental properties either here or abroad are quite a headache. You need to have a very savvy portfolio for this to make money and not be stressful. I used to have a rental flat and I'd get very stressed with empty periods and finding tenants etc. I hated it and sold it in the end. It's not for everyone.
Holiday homes are similar, do you really want to go to the same place several times a year. I do but that's because my mum lives next door and so I've got other reasons to go. It can be costly eg depending on county stamp duties, council tax equivalent etc. Don't get sucked in on the purchase price!
Personally I'd be investing in pension and setting aside some for DC for either uni fees or house deposit. Put it in trust for them rather than give as cash.
For your pension, get a good IFA and work out how long your pension will last (assuming you're on DC not DB scheme). Assuming you will live to a ripe old age, you may find it doesn't last as long as you imagine. I have a very good pension which I've saved hard into over the years and even then it won't last beyond the age of 90!

I’d prefer help towards a mortgage deposit more than uni costs as it’s one of those debts that lots of people never fully pay off and gets written off, and it doesn’t count against you as in terms of obtaining a mortgage.

@Nicole1111 Unfortunately the government have changed the student loan system so now it will be a huge drag on take home pay. Repayments start earlier and most will pay off more than they borrowed even if they never ‘repay’ the full amount due to the interest.

Our children’s generation are truly screwed.

Another thing to bear in mind with student loans is that the Ts & Cs can be changed by the Government at any time. It’s also now 40 years until it’s written off.

In OP’s position I’d get pull together some ideas about what to they want to do and take financial advice.

See here for the latest on student loans

https://www.moneysavingexpert.com/news/2023/05/martin-lewis-good-morning-britain-student-loans/

How much will your household income be when your children go to University?

How many children do you have?

What are their ages?

If you are above the 60k threshold your children will only get the lowest maintenance loan around £4600.00 a year. You will be expected to top this up.

Currently my child started Uni in Sept 2023 on a 5 or 6 year medical degree depending if they intercalate. We are budgeting 10k a year to pay their rent and they live off their minimum loan. If we were going to pay for everything we would have to budget 25k a year.

Their entire student debt could be up to 70k if they intercalated (NHS pays 1 year course fees) this is on the minimum maintenance loan. If it was a full maintenance loan it would be over 100k. It is estimated that a medical degree costs the UK tax payer over 200k so in a sense they are still getting value for money.

We may help them pay off their student debt if their career takes off and they make a success of it however, they may decide to go part time or who knows what 18 is very young to decide on such a stressful career and who knows what the future holds.

We will help with a house deposit 50k to 100k depending on the outcome of downsizing our home in a few years.

We only have one child too.

Re the comments about student loans...yes it's a debt but not in the same sense as a mortgage, bank loan, credit card etc. It's also the norm for the majority of students as without that loan, they can't access university.

So whilst it would be great if I didn't have to repay it (I'm 38 and still have a few years left), it's also not something I'd ever expect my parents to pay for up front as it's a manageable debt for me, dependant on my salary and doesn't affect my credit rating etc. Whereas it's a lot of money for parents to have to fork out over 3/4 years for their children! Especially if they have more than one.

Spend it! On a holiday home and trips abroad and treats. Enjoy your life while you can. As Covid has shown us, it can change overnight. All of those “future plans” could suddenly become irrelevant if you’re unexpectedly diagnosed with MS or hit by a bus or something.

We are in a similar situation and are planning to buy to let for some more income and possibly sell up and help the children with a deposit when they are older.

It's not really possible to say what I would do without more information about your situation. What's your household income, what other savings/investments/assets do you have, what ages you are, what's the value of your house, are you happy with it, what are your retirement aspirations, what are your pension situations, what support would you like to provide to your children for further education, traveling, buying a car, getting married, getting on the housing ladder etc?

If I were you:

max out pension contributions, most people completely underestimate what they will need in retirement to maintain the standard of living they have

Invest for kids - with this amount of “spare” money it’s a no brained for me to pay their higher education costs and allow them ti graduate debt free.

Don’t buy property - it will become a millstone you just don’t need. Take advice from an IFA and create an investment portfolio with a risk profile you are comfortable with

Please don’t do this. Believe me when I say you will get a higher return on a good investment portfolio aND a whole lot fewer headaches. I own several BTL properties, I know of which I speak!!

Really? We have inherited it and will only have a small mortgage on it. We really want to keep it and thought it was a good idea.

property is surely still a good investment?

I inherited around 100k a few years ago, I was fortunate not to need it so I used it/have ear marked it to help my three DC.