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

123 replies

Amy8 · 20/06/2024 09:16

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 ?

OP posts:
Ineffable23 · 21/06/2024 18:48

MrsKwazi · 20/06/2024 09:27

Clear debt
pay off mortgage
invest in a high yield fund, your money should double roughly every 7 years look up the effect of compound interest and the rule of 72
lock money away. Just spending £15 a day on non essentials comes to over £5k a year. So easy to fritter away without ever really trying!
if you want to go indie for schooling, invest and look in 7 years time when she is ready for secondary.

This. You'll eat easily half of it if you go private all the way through (15k a year for 14 years would be 210k and that allows nothing for inflation or VAT). Secondary school (if necessary) but honestly I think uni fees + a house deposit is likely to be a more useful option unless the schools where you live are especially dire.

Amy8 · 21/06/2024 18:51

Ineffable23 · 21/06/2024 18:48

This. You'll eat easily half of it if you go private all the way through (15k a year for 14 years would be 210k and that allows nothing for inflation or VAT). Secondary school (if necessary) but honestly I think uni fees + a house deposit is likely to be a more useful option unless the schools where you live are especially dire.

I see your point and if I had other income then fine but rent and earnings are there too

OP posts:
MollyJustMight · 21/06/2024 18:55

Jump on a plane and go see my son and g/kid who live on the other side of the world.

Mummy2024 · 21/06/2024 19:00

Newposter180 · 21/06/2024 17:22

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).

Thanks you explained that perfectly and in layman's terms for me 😆. I thought setting up a company would be the best way to manage the tax. Surely in the case of OP paying 45% tax on a salary would be a better return than the 5% they could make doing nothing with it?

It was my understanding that you only paid capital gains on any value the property has gained though not the initial purchase price is that not correct?

How your friend has lost value in the property they own astounds me to be honest the price of property has risen ridiculously in the last 8 years. Maybe they spent money refurbishing and went past the price ceiling for the area?

I think OP should take expert advice, they are already a landlord and are well accustomed to the work of being a landlord so In their case I would think they know what they are taking on, and will be better placed being in the industry owning outright. Ultimately it will be upto them I suppose but thanks so much for the explanation. I won't rush out to buy a hoard of houses if I will the lottery I will take expert advice first lol

Amy8 · 21/06/2024 19:05

Mummy2024 · 21/06/2024 19:00

Thanks you explained that perfectly and in layman's terms for me 😆. I thought setting up a company would be the best way to manage the tax. Surely in the case of OP paying 45% tax on a salary would be a better return than the 5% they could make doing nothing with it?

It was my understanding that you only paid capital gains on any value the property has gained though not the initial purchase price is that not correct?

How your friend has lost value in the property they own astounds me to be honest the price of property has risen ridiculously in the last 8 years. Maybe they spent money refurbishing and went past the price ceiling for the area?

I think OP should take expert advice, they are already a landlord and are well accustomed to the work of being a landlord so In their case I would think they know what they are taking on, and will be better placed being in the industry owning outright. Ultimately it will be upto them I suppose but thanks so much for the explanation. I won't rush out to buy a hoard of houses if I will the lottery I will take expert advice first lol

I declare rental income already via self assessment

OP posts:
Mummy2024 · 21/06/2024 19:08

Amy8 · 21/06/2024 19:05

I declare rental income already via self assessment

This is what I mean. Your already an established landlord. Your aware of everything so owning outright will only be of benefit to you and increase profit (even if you do pay abit more tax) and hold your initial capital in a relatively secure place.

GinForBreakfast · 21/06/2024 19:26

@Mummy2024 you sound like a great tenant. I think I've had a pretty average experience as a LL but it included two fires caused by tenants; multiple tenants skipping out owing rent; neighbour complaints; two properties I couldn't sell when I wanted to... I have had 6 months of hassle trying to get a buy to let mortgage because banks are coming out of the market. You can't just leave everything to agents. I've just had to replace a load of blown double glazing units and get scaffolding to clear gutters in a three story property. That's 3-4 months worth of surplus gone.

The CGT is a big thing. Eventually you will want to sell and of course you have to sell 100% of the property. With an investment you can release %s of your capital over a number of years for tax efficiency.

nearlylovemyusername · 21/06/2024 19:40

The issue is that it's impossible to do any financial planning at the moment.

When thinking about private school take VAT into account and how it might affect the school/s you're considering.

I wouldn't touch BTL with a barge pole - you'd be at mercy of your tenants with no right to evict, rent increase, multiple regulations etc and all income and CGT when you decide to sell will be taxed through the roof.

We need to see Labour policies about savings/pensions/investments which are likely to be taxed extremely heavily.

The most worrying one is about IHT and potential taxes on gifts. At present you can gift any amount of money / any asset to anyone and assuming you live for another seven years it's not subject to any tax, IHT included. Labour are most likely to change it.
So no idea really

thecatneuterer · 21/06/2024 20:09

determinedtomakethiswork · 20/06/2024 09:22

I really wouldn't invest in property.

Look at the vast number of threads on here where it's gone wrong with tenants.

I wouldn't spend the money on private education either. I would buy a house in an area where there are really good schools instead.

Completely agree. No one in their right mind would choose to become a landlord now. And with Labour likely to get in things will only get worse for the private rented sector.

Amy8 · 22/06/2024 06:59

thecatneuterer · 21/06/2024 20:09

Completely agree. No one in their right mind would choose to become a landlord now. And with Labour likely to get in things will only get worse for the private rented sector.

I’ve been a landlord for over a decade without issue , I’ve no problem paying taxes on my rental income

OP posts:
Goldmember · 22/06/2024 07:29

I'd pay off my mortgages in the best way to avoid ERCs, so for me that would be having the sum repayable at the end of the fix. Keep it in decent rate fixed savings. Whilst the savings interest outweighs my mortgage interest. It could be better off for you to pay the 10% overpayment annually when the new overpayment period starts. Do the sums to see which works best.

Have 10-15% for fun money/ life upgrades: for me, this would be holidays, kitchen and bathroom reno and garden landscape. This would be private school for you (we are lucky to have a great state school locally), new car maybe?

Max out ISAs and pensions, and then invest the rest for my future. I'd not tell anyone about the money, it ruins relationships.

thecatneuterer · 22/06/2024 08:37

Amy8 · 22/06/2024 06:59

I’ve been a landlord for over a decade without issue , I’ve no problem paying taxes on my rental income

I'm not talking about taxes. I'm talking about removal of Section 21, the new EPC regulations Labour is proposing and likely rent control measures.

StuffCanDoTwoThings · 22/06/2024 22:54

wow I am amazed at the number of people here who would only go on one holiday if they ran into 500K!

If you are a high earner as you say, already have your emergency fund and pension sorted and already have a property to let then please go on more than one holiday

In your position I would max out any tax free options like premium bonds and ISAs then just invest the rest in a global tracker fund in a GIA and move it into ISAs each year. Over the years your kid is in school I would say you would make enough money to not have to erode the capital for fees (or not much as you’ll be paying tax on a lot of it).

Do not speak to a financial advisor. Prioritising education and wellbeing is an investment

good96 · 22/06/2024 23:07

Pay off your mortgage on your current home would be the priority for me.

I would look at private school fees as that is what you desire and then look after family too. Don’t go telling everyone you’ve come into all this money as you’ll have people asking you!

I would consider investing into property. Buy a couple of rentals in a location where you are likely to gain a profit on your investment. I became a property investor 25 years ago and have a portfolio of 6 properties. Purchased for around £40k - had a strategy to buy the worst house on the best street. They are now all worth in excess of £200k. I’ve just actually agreed a sale on one of them to a tenant for £215k!
It’s worth it in my opinion and it means that you’re not flushing the cash away as what most can do when they come into it!

Cornishclio · 22/06/2024 23:23

In your circumstances I would pay off mortgage and invest some for retirement and spend some. £500k is a lot but not life changing and as you have a young child presumably you are a fair way off retiring.

Is your house ok for your needs and in a nice area for good schools? If so I would not move but maybe pay off mortgage and perhaps extend. This would save on private school fees which personally I wouldn't do.

Spending on holidays and cars in moderation is a nice way to treat yourself and presumably would give you pleasure.

If you pay off the mortgage (and debt if you have any) then you should have extra money available monthly to up pension contributions.

Keep a decent emergency fund in a savings account. 6 months expenses is a reasonable amount to protect yourself against unemployment.

If any left after that obviously there is a multitude of things you can do from gifting, charity donations, investing or spending.

Mummy2024 · 23/06/2024 13:05

thecatneuterer · 22/06/2024 08:37

I'm not talking about taxes. I'm talking about removal of Section 21, the new EPC regulations Labour is proposing and likely rent control measures.

All the problems landlords are encountering are due to buy to let mortgages....

Why would the removal of a section 21 be a problem to decent landlords???

Every house has to have an ECP so what's the issue here unless the house is in such a state being rented out it costs alot to get it upto standard?

As for rental controls, people are paying way to much. Your not telling me it costs more than £1500 a month to keep up these houses.

The OP does not require a mortgage, she can afford to accuire a decent standard of property from the outset not a doer upper.

As for fires building/landlord insurance should have been acquired so the costs of that will be covered.

For me I'm glad the era of buy to let mortgages are coming to an end. I'm absolutely delighted that this type of landlords are starting to think it's just not worth it. Shame it didn't happen before house prices doubled.

OP is in a different situation she won't be tied down by mortgage rates, she can acquired a decent property from the outset and apply a fair rent and still make a decent yield. She's the type of private landlord this country needs.

elkiedee · 23/06/2024 16:24

I'm in north London though almost certainly not in the same area as you. Are all your local state schools still massively oversubscribed? Even the ones that were, near me, no longer are. Look this up for your area on the last couple of years - birth rates have fallen a lot in recent years - my 17 year old was in the last bulge year locally, and my 15 year old's year is still a bit bigger.

jellybe · 23/06/2024 21:27

Would buy the house I want in the area that I want with no mortgage.
Then the money I'd save every month from not having a mortgage would go into savings for the kids and use each month.

Amy8 · 24/06/2024 01:04

elkiedee · 23/06/2024 16:24

I'm in north London though almost certainly not in the same area as you. Are all your local state schools still massively oversubscribed? Even the ones that were, near me, no longer are. Look this up for your area on the last couple of years - birth rates have fallen a lot in recent years - my 17 year old was in the last bulge year locally, and my 15 year old's year is still a bit bigger.

The two best schools by that I mean ofsted outstanding ( and word of mouth reviews) are - we didn’t get in as just outside catchment and I’m not that keen to move to down the road to get her in really - lot of hassle where we get more space where we are

school fees are my single biggest concern as regards to “waste of money” but she’s thriving at the nursery of the prep school so next move was the school - small independent, small classes, really nurturing over academic hot house. Hope that lays foundation for grammar or a great state and would move then

im set on rental as I know property in the areas I’ve invested In well as well as paying my mortgage off.

next bet is investments but I won’t have much left -
maybe 100k as well as the regular ROI.

OP posts:
thecatneuterer · 24/06/2024 19:46

Mummy2024 · 23/06/2024 13:05

All the problems landlords are encountering are due to buy to let mortgages....

Why would the removal of a section 21 be a problem to decent landlords???

Every house has to have an ECP so what's the issue here unless the house is in such a state being rented out it costs alot to get it upto standard?

As for rental controls, people are paying way to much. Your not telling me it costs more than £1500 a month to keep up these houses.

The OP does not require a mortgage, she can afford to accuire a decent standard of property from the outset not a doer upper.

As for fires building/landlord insurance should have been acquired so the costs of that will be covered.

For me I'm glad the era of buy to let mortgages are coming to an end. I'm absolutely delighted that this type of landlords are starting to think it's just not worth it. Shame it didn't happen before house prices doubled.

OP is in a different situation she won't be tied down by mortgage rates, she can acquired a decent property from the outset and apply a fair rent and still make a decent yield. She's the type of private landlord this country needs.

The problems I'm talking about are not due to the removal of tax relief on mortgage interest - that's an entirely different problem which wouldn't be faced by someone buying for cash.

The proposed removal of Section 21 will become a huge problem for all Landlords (except the lucky few who never have a bad tenant). Section 21 may be called a 'no fault' eviction, but what it really is is a 'no reason given' eviction. Landlords use this to evict tenants who don't pay, who cause damage, who are antisocial etc etc as it avoids having to have a court case. As it is, from issuing notice to getting the bailiffs in, using Section 21, takes at least a year at present. Using Section 8 (for fault) takes much longer as the courts are so clogged up. And when all the Landlords suddenly have no recourse to Section 21, then most of those evictions will have to go through the courts instead. They already don't have capacity and with that enormous increase in cases evictions are likely to take at least two years! And all the time tenants can be not paying, trashing the place etc etc.

Also it will be a particular problem for shared houses (HMOs) as landlords need to be able to evict people who cause problems for the other sharers - noisy/dirty/not paying share of communal costs etc. This is likely to be below the threshold for using antisocial behaviour grounds, and how would you prove it anyway. It would almost certainly mean that the good tenants will just leave, and then if you get more, they will leave too. I just can't see how it's possible to run shared houses if you aren't going to be able to get rid of troublemakers.

And what this will mean for tenants is that landlords are going to be extra, extra picky about who they take. If you risk not being able to evict for such a long time then you will never take a chance on someone. Only those tenants with the best credit history, employment history and references will be considered. I know, if Section 21 is removed, I would rather leave a house empty for a couple of months than take a chance on anyone I'm not as sure as I can be about.

And as for the EPC regulations. At present they must be a minimum of D I think, which is fair enough. It was proposed (until the Tories finally saw sense) to raise the minimum to a C. The thing is a huge proportion of the housing stock (certainly in London and probably in most of the country) are Victorian terraces. These are solid wall construction and so difficult to insulate. Even with good quality double glazing, double glazed doors, new boiler, loft insulation etc most Victorian terraces still only rate a D. To get to a C would involve digging up and replacing all the floors and cladding the outside. An average cost to do this would be £15 - 20,000. And even then it would only be a C. I can't see many homeowners doing this to their Victorian terraces - the cost, disruption (and ugly cladding) are way out of proportion to the benefits of going from an EPC D to a C. If this were to be brought in after all then thousands of tenants will be getting evicted, Landlords will be trying to sell the houses and the housing market will collapse. You may think that would be a good thing in the long run, but the chaos and disruption would be off the scale.

StMarieforme · 24/06/2024 20:01

Congratulations OP! I am genuinely happy for you!
Pay off your house.
Invest in your daughter (private school if you were thinking that anyway) so put away her secondary fees in a high interest er estate and get primary in accessible.
Have a holiday! 😊

Mummy2024 · 24/06/2024 20:06

thecatneuterer · 24/06/2024 19:46

The problems I'm talking about are not due to the removal of tax relief on mortgage interest - that's an entirely different problem which wouldn't be faced by someone buying for cash.

The proposed removal of Section 21 will become a huge problem for all Landlords (except the lucky few who never have a bad tenant). Section 21 may be called a 'no fault' eviction, but what it really is is a 'no reason given' eviction. Landlords use this to evict tenants who don't pay, who cause damage, who are antisocial etc etc as it avoids having to have a court case. As it is, from issuing notice to getting the bailiffs in, using Section 21, takes at least a year at present. Using Section 8 (for fault) takes much longer as the courts are so clogged up. And when all the Landlords suddenly have no recourse to Section 21, then most of those evictions will have to go through the courts instead. They already don't have capacity and with that enormous increase in cases evictions are likely to take at least two years! And all the time tenants can be not paying, trashing the place etc etc.

Also it will be a particular problem for shared houses (HMOs) as landlords need to be able to evict people who cause problems for the other sharers - noisy/dirty/not paying share of communal costs etc. This is likely to be below the threshold for using antisocial behaviour grounds, and how would you prove it anyway. It would almost certainly mean that the good tenants will just leave, and then if you get more, they will leave too. I just can't see how it's possible to run shared houses if you aren't going to be able to get rid of troublemakers.

And what this will mean for tenants is that landlords are going to be extra, extra picky about who they take. If you risk not being able to evict for such a long time then you will never take a chance on someone. Only those tenants with the best credit history, employment history and references will be considered. I know, if Section 21 is removed, I would rather leave a house empty for a couple of months than take a chance on anyone I'm not as sure as I can be about.

And as for the EPC regulations. At present they must be a minimum of D I think, which is fair enough. It was proposed (until the Tories finally saw sense) to raise the minimum to a C. The thing is a huge proportion of the housing stock (certainly in London and probably in most of the country) are Victorian terraces. These are solid wall construction and so difficult to insulate. Even with good quality double glazing, double glazed doors, new boiler, loft insulation etc most Victorian terraces still only rate a D. To get to a C would involve digging up and replacing all the floors and cladding the outside. An average cost to do this would be £15 - 20,000. And even then it would only be a C. I can't see many homeowners doing this to their Victorian terraces - the cost, disruption (and ugly cladding) are way out of proportion to the benefits of going from an EPC D to a C. If this were to be brought in after all then thousands of tenants will be getting evicted, Landlords will be trying to sell the houses and the housing market will collapse. You may think that would be a good thing in the long run, but the chaos and disruption would be off the scale.

The buy to let mortgage phase coming to an end is an extremely good thing for every single renter and first time buyer in this country yes.... i for one would absolutely love to see the collapse of the housing market maybe then I could actually buy one! Home owners wouldn't lose out they would just need to hold onto them as they did in 2008 until it recovers.

thecatneuterer · 24/06/2024 20:26

Mummy2024 · 24/06/2024 20:06

The buy to let mortgage phase coming to an end is an extremely good thing for every single renter and first time buyer in this country yes.... i for one would absolutely love to see the collapse of the housing market maybe then I could actually buy one! Home owners wouldn't lose out they would just need to hold onto them as they did in 2008 until it recovers.

I don't necessarily disagree with you about buy to let. Right to buy should have been scrapped eons ago of course.

You asked me why the regulations would be a problem to existing good landlords. I have tried to explain that. Of course you are well within your rights to think 'good, fuck'em', but I hope I have at least managed to explain some of the issues and why even good landlords have a lot to fear

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