What to do with unexpected inheritance?

[KidzKidding]

We are already in an incredibly fortunate position: from a combination of good luck, bad luck, hard work and good timing we have a good but not huge household income of £80k but we own our house outright, have no debt or credit, own two cars, low childcare costs, low outgoings etc so we are pretty well off already. We are soon to receive an inheritance from a distant relative (soon = in the next month) of £200k. We are a bit blindsided tbh.

Is it worth seeing a financial advisor for this amount? Seems like too small a figure to warrant paying for advice but I'm not sure what to do with it either. It's not a 'life changing' can do anything we want amount but it's also a huge amount of money.

If anyone has specific suggestions for me to look into here are some details of our life: 2 adults, 2 school age kids. We comfortably meet our lifestyle costs out of month income, we save a small amount for the kids every month and a larger amount for ourselves. We have pensions - not huge but in line with what we feel will be a comfortable retirement. We already holiday every year and have hobbies etc - we feel incredibly fortunate. Trying to think about what we would prioritise: well being able to retire early is a lovely idea, we are both early 40s. Helping the kids through uni and maybe onto the housing ladder?

Rather than paying for a FA, I think OP’s money would be better spent using a solicitor to change her will and to set up trusts for her kids.

Which is OK if you know exactly what you want to do as the solicitor is unlikely to be a qualified IFA so will just be working "execution only" to enact your wishes without giving any advice.

Rather than a "basic" solicitor, I'd think the OP should be looking for a STEP qualified solicitor who is better trained re wills/trusts etc who'd give a more "rounded" service where an IFA isn't involved.

A financial adviser, if good, is worth paying for.
I have one, I don't have a huge amount of money but he consistently makes me money.
Btw I don't tell people IRL that I have a financial adviser as I don't want to sound like a twat 😂

A Self Invested Personal Pension.

It's a tax wrapper, available to UK residents only, which allows you to contribute to a private pension from your net (post-tax) income. Because pension contributions aren't taxable in the UK HMRC then pays the standard 20% rate of tax you would have paid on the gross (pre-tax) equivalent direct to the pension. If you are a higher rate taxpayer you can reclaim the additional amount through the tax return system.

If you are earning, you can pay up to your entire annual income into a SIPP, and even if you're not a taxpayer you can still contribute up to £3,600 a year to one and claim the tax relief, so the government adds £720 to your £2,880 cash.

You can choose the underlying investments in a SIPP. One of the most effective ways of boosting returns over the long term, especially on relatively small amounts, is to keep fees and charges as low as possible: while most SIPP providers will charge a holding fee and then a trading fee every time you buy or sell an investment in one, and there might be management fees within a fund for example, you are not paying a pension administrator.

Capital gains are tax free within a SIPP. You can access a SIPP at 55 (rising to 57 from 2027 I think) and take 25% tax free as a lump sum, but then pay income tax on any further distributions at your marginal rate.

My SIPP is with AJ Bell, other providers are available. Have a look at their website, as well as Hargreaves Lansdown and the other usual suspects - they will have far better explanations of SIPPs.

Definitely not with SJP.

If it was me I'd max out pension AVCs. You are allowed to put up to £60K (or 100% of your salary, whichever is lower) per year into your pensions and can make use of the previous 3 years allowance. But that locks the money away until you are 55 so you might not want to do that if you are younger (I'm already in my 50s and have plenty accessible savings). And if you have a defined benefits pension scheme then you have to factor in what your employer is paying in and any increase in value of the fund. If you want your DC to have it after you die then you need to use that as a drawdown pension and not buy an annuity.

Using your ISA allowance is also sensible and you can invest twice in the next few months. That could be up to £40K each for you and your DH. S&S tracker with low fees. That's more of a mid term savings option.

For shorter term premium bonds is fine but your money doesn't increase in value over time and you're not guaranteed any returns. You'd need to have a decent amount in to get regular wins.

Moneyhelper is agovernment website that has clear information about your various savings options.

Btw I don't tell people IRL that I have a financial adviser as I don't want to sound like a twat

Years ago, when I was working in the NHS I was on a working group of managers who were getting very excited about 'dashboards' of data and intelligence without really having the slightest idea what one was. I made the mistake of mentioning that my stockbroker had something similar... you could hear the metaphorical tumbleweed blowing around the room.

Just out of interest - if all the money is inherited by the DC, how is the surviving parent meant to manage? How will the mortgage be paid? Bills? Childcare? If one of you died next week, could the other parent continue with the same lifestyle you currently have on just their income?

Oh err, good question. I suppose what I mean is that the money goes to the surviving spouse in the first instance and to the children if we both die together? Honestly I can't even remember, so certainly our wills could use another look - we wrote them quite sometime ago when we were in a very different financial position (and still had a mortgage).

I'd put the maximum you each can into a SIPP. If either of you are a higher rate taxpayer, you can pay up to £60k in and it will only cost you £36k (HRMC will top it up by 25% and the rest will be a refund from HRMC). You can do that a couple of years running for maximum benefit.

How much do you have saved for DCs already? I’d personally top that up, put more into your pensions, max out ISAs and then keep some back to have an extra holiday this year.

I agree with pp put the maximum amount ISAs and do the same in April. Interest over £1k is taxable. ISA interest is tax free.

Use NS&I as a temporary solution to give you time to think and research. NS&I are not subject to the £85k limit.

It doesn’t matter what’s in the wills, everything would go to the surviving spouse, assuming that OP and her husband are joint tenants, like most married couples who jointly own a house. That’s why I mentioned a potential sideways disinheritance scenario and advised for being tenants in common.

If there is a will then everything doesn't go to the spouse, it's perfectly possible to leave to other people (and in Scotland it's a legal expectation your children will inherit a share - although that is easy to overcome if you want).

I'd say it is worth seeing an IFA (these days most people don't if they're prepared to do some basic research but that probably changes once you have well above £100k).

But it's probably worth looking at the financial flow chart and Meaningful Money website which also has a podcast as it will make you more knowledgeable and be better able to have constructive discussions with your IFA when you see them.

In the short term I'd get £80k in cash ISAs (2 x allowances this tax year and next) and the rest in the best paying cash accounts. Then aim to seek advice in the next few months when you've had a chance to read up and think about what you'd do with the money or lifestyle changes you'd make (work less, save for DC, move house or home improvements etc)

Watching with interest. It's a jungle out there with inheritance tax and investments.
Get an appointment with a financial advisor. They are indeed worth it. Be choosy who you use though. Do shop around for recommendations.
Trust funds I believe is the way to go for DC's but I don't know much about it.