What would you do if you came into a large sum of money ?

[Amy8]

As the title suggests , I’ve come into a large sum 500k + and being someone who hasn’t come from money but has worked really hard I wasn’t expecting this , I don’t know what to do! I know I know , first world problems- I want to do the below

• invest in property maybe move
• pay off mortgage
• give to some to close family and charity (a cancer charity close to my heart)
• pay dd school fees (she’s only 4) and was considering private - the money allows me to do both above

or

• spend on holidays and new cars, an extension we’ve needed And leave most of the above (not charity bit),

What would you do ?

Retire..

I'd pay off the mortgage and do home improvements or potential move. I'd then look at private from senior school if your local one isn't great. Paying off your mortgage will free up money month to month to have more luxuries and holidays but I'd likely splurge on one big hol.

I know others have advised against it but I would help family out as well if they needed it. But maybe keep the amount you have inherited quiet as it's a large sum.

Pay off the mortgage and invest the rest. Once you aren’t paying the mortgage you’ll have some extra monthly anyway. Honestly I wouldn’t be giving money away. I have a big family and no doubt there would be people popping up expecting something or a feeling that they didn’t get “enough”.

Pay off mortgage and consider moving or improving home.
Max out premium bonds.
Max out ISAs.
Increase pension contributions.
Take advice on longer term savings/investments for children.
Use income from investments to pay for nice things like holidays and nicer cars.

I wouldn't pay for private school at primary school, I would definitely consider it for secondary.

I definitely would not invest in property, far too much hassle for the measly returns and the risks involved. Plus exit strategy is crippling tax-wise.

@Amy8 I have a wealth manager who looks after if all. He does charge me quite a bit but the return makes it worth while. It’s in a mixture of ISA, European Japanese equity funds, bonds plus some gold amongst other things.

im a risk level 5 so in theory it should be relatively stable. The idea is for capital growth and income.

My kids have house deposit money which are currently in fixed term bonds mainly as one may need it in a couple of years. The others I’ll probably put into into similar into investments at the end of the fixed term as they won’t be needed for a while

Car and save for uni fees.

There is a reason all the BTL landlords are selling up..!

I would give away 10% to charity, distribute 10% amoung closest family (no cash gifts to friends but might fund a lavish party), set aside whatever is needed for DC private education and put the remainder towards paying off mortgage - if remainder is larger than outstanding mortgage then the next priority wbe a good pension.

No cars or holidays. Those need to come from ongoing income, not capital.

Yeah its because interest rates have gone up. This OP is buying outright so isn't affected by that. The yield minus house repairs and tax are complete profit. House prices are holding and infact still rising atm so it's a very good investment for a cash buyer.

I'd hire a financial adviser.

Well, that sum would only just pay off my mortgage, but that's what I'd do with it. Then with the money I 'saved'/freed up by being mortgage-free I'd think about what to give to charity, invest etc.

I would buy a house. 500k would get us something really decent locally with a chunk left over to save for emergencies.

Terribly tax inefficient though, and a massive hassle (and I say this as the reluctant Co-owner of my husband’s old flat which is owned outright and rented).

Agreed. Plus a very illiquid asset. Selling is a massive hassle compared to cashing in an investment.

Investments especially bonds etc scare me !

I'm genuinely interested, although it's taxable and it is alot of hassle which can be combated by using an agency for day to day running of the property. Yes it's reduced profit by using one but all rental income is profit using some to reduce work load and reduce risks would be appealing to me.

I presume when you talk about tax inefficient you mean because it usually takes the owner above 50k annual income and becomes taxable at the 40% rate?

Could this not be combated by registering the property as owned by a limited company and then it would be taxed at the buisness rate of tax? Most profit would be held by the company to accuire future properties and not paid to OP. I'm no tax expert so I'm pretty clueless when it comes to this hence my being genuinely interested.

Shares are so so risky it's basically betting, at least with property your core investment is relatively safe. The tax implications and hassle are more than worth that for me.

I'd buy a house as I rent at the moment

Government bonds are relatively secure I've heard. They are very long term though but like you I would not invest an awful lot in stocks shares and bonds. The risk is just far to high. Property is a much safer bet, as your initial investment is preserved mostly anyway. Obviously there's pit falls with the tax and hassle but I feel it's worth it and I'd keep them long term 10 to 20 years longer if the market was going the wrong way. As an outright owner you can afford to.

Middle son (15) wants a week on

https://en.wikipedia.org/wiki/SS_Delphine_(1921)

He has taste!

I'd clear debts, then look at avoiding losing too much to tax, especially as you still be working.
Max out premium bonds for me, partner and children (safe, tax free if you win).
Clear mortgage (dependant on early repayment charges - mine are low)
Invest the maximum yearly amount into ISAs for the whole family.
Then book a holiday to celebrate!

Spread What's left into banks to ensure it's under the protected amount.

Don't forget your wage. If debt free there is a chunk of money 'spare'.
You could put more into a pension via salary sacrifice or SIPP.
Finally you could pay into your spouse or children's pensions too to set them up.

I will preface this by saying I’m a lawyer not an accountant, so have a superficial understanding having looked into this for my own purposes, but no, the issue is not pushing into a higher tax band generally (although I suppose that would apply to some people). In order to buy a second home (at least in Scotland, although I believe similar in England?) you pay an additional 6% of the value of the property as Additional Dwelling Supplement on top of whatever you’d normally have to pay in stamp duty. Any income on the rental is taxed (for me at 45%) and (if relevant) mortgage payments can’t offset that. Then if you come to sell, any profit will be subject to capital gains tax as it’s not a primary residence. I know someone who will pay significant CGT even though the value of the property has actually declined.
Separately, yes you could set up a company to avoid some of the above, but firstly you’d have to pay someone to set up and run it. The bigger issue is that you still have to get the money out of that company somehow - whether that’s via salary (subject to PAYE) or dividends (roughly 34 or 40% tax depending on bracket) etc. The company can obviously keep the profits (I guess subject to corporation taxes) but the OP can’t access/use them without paying some kind of personal tax too. I don’t have any experience in this model but assume it’s only really worth it if you’re planning a bit of an empire and can afford decent advisors?
I don’t personally view investment in stocks and shares as hugely risky if there is a diversified portfolio: my understanding is that over the past 10 years, the average investment in shares would have significantly outperformed the same amount invested in UK property. I think in either case a long-term approach is needed, but this also means that the tax landscape can change in the meantime (e.g. with regards to capital gains allowance, as has happened recently).

Ok, I was in a slightly comparable situation roughly a year ago, and I did what a lot of people are suggesting. Paid off mortgage. Large chunk straight into premium bonds. About half the rest into 12 month fixed rate investments (NS&I and another provider, but would suggest you look at moneysavingexpert for best buys to decide where you put these). Remainder in an easy access savings account while we started to work out what to do.

Since then, we've put maximum in both our ISAs (DH and me that is), in the last tax year and this. We did already have self-select share investment ISAs that we'd not been able to add to for a long time. You will probably want to research where to put your ISA money, that you will be comfortable with. We also added to SIPPS, not so much as the ISAs. Some of the money I put in our investment accounts was invested last year, much of it stayed in cash until I was ready to make more investing decisions. Finally, I put some money into 12 month fixed rate investments at 3-4 month intervals.

I'm now beginning to feel I know how I want to invest, and in 2-3 months time when my largest 12 month fixed rate bonds start to mature, I expect to be fairly ready with my plans where to put the money next. Trying to invest the majority in a "long term" manner right at the start would have been a nightmare even though the way the markets are going I might have done well.

Very best wishes to you, I hope you are able to make your life-changing amount, actually change your lives as you would wish!

@Mummy2024 I am a divesting landlord. I've invested in property for 20 years and can tell you that the game is not worth it anymore.

Increased taxation, decreased CG allowance, new regulations, new legislation giving greater power to tenant, energy efficiency requirements, increased maintenance costs (construction materials have trebled)...

Celebrate, treat my kids and travel

I know but given I rent a house, I've lived in it 8 years and I've called the landlord out 3 times maximum. If you buy a decent property it doesn't need to cost the earth to maintain.

I don't think no fault evictions being addressed and improved tennants rights should make it more difficult for decent landlords if I'm honest as tennants don't need to be protected from the decent landlords.

The energy efficiency requirements maybe an issue I don't know alot about it, but if I ever reach the point I'm able to buy its something I will look into. I need to be able to buy a house of my own first! Which is extremely hard work given the extortionate prices in the market.

The increased taxation shouldn't be an issue for an outright owner... yes it decreases profit but the core investment is still in the house, as long as the return is over 5% it's still better than leaving it in a bank account doing nothing and less risky than stocks and shares.

Buy to let mortgage landlords are a completely different story as they never own the house fully and are interest only mortgages, interest rate rises and everything you've said above can quickly make it impossible to maintain the property and balance the books.