I have an upcoming inheritance. How do I best protect its value and make it work?

26 October 2021

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Question by Peter

I have an upcoming inheritance of 500k, and need to understand how best to protect its value, and make it work. I am married, 54, with small DC pension pot (200k) and contribute 30k a year. Only asset is house, with mortgage (120k) at 1.99% (fixed for next 18 months) Have a rainy day fund of approx 9 months net salary. My first thought was to buy 1 or 2 small houses to create a BTL income, but given all tax changes etc, I am not sure if this still makes sense.

Answered by Fraser Kerr

Good afternoon Peter, hopefully this response finds you keeping well and looking forward to the weekend.

Regarding your inheritance, there are a host of different vehicles that could provide the potential for growth, income and with differing tax planning benefits. I think with regards to your starting point of investing in property, this is definitely something that people do feel comfortable with. The idea of bricks and mortar, something tangible and is an asset that could of seen real growth potential as well does appeal to people.

I think it depends on your current position though versus your overall objective and aspirations. For example, your time horizon to retirement, the level of income that you want, the level of risk that you are willing to take and all of this could be impacted by the level of earnings that you have at present as well with the tax rates applicable to you. Having your rainy day fund of 9 months net income is really sensible and it sounds like you have a handle on your other assets between the house and pension, however a retirement calculator such as this one https://advice-uk.abrdn.com/?vid=pvretirement2#explore/assets could help assist & give you an indication of your income needs in the future.

Pension does come with tax advantages, however, with the level of contributions you are making and limitations on what you can contribute along with carry forward needing to be considered, it is difficult to suggest an amount that would be of benefit here. There are other options to and I think with the broadness of your question it would be imperative to have a more complete understanding of your position from both a hard facts perspective and in terms of your aspirations, what you are hoping to achieve moving forward as it may well be that even with tax changes that BTL properties could be advantageous.

I apologise for the vagueness with my answer, I just feel that with the broadness and potential options available to you, you really could benefit from someone having a more thorough understanding of your position through an audit of your current arrangements and looking to really understand your needs with the funds before looking to provide a further steer. hopefully that was okay for an initial opening of dialogue though and please feel free to reach out to me to discuss further.

Answered by

Fraser Kerr

Financial Planner & Regional Director

I’m a Regional Director with abrdn Financial Planning. We offer free planning support and specialist financial advice across the UK, to help you make the most of your money for your life. I support individuals, couples and families to set and achieve their goals, giving them confidence and peace of mind for the future.