I’m due an inheritance of £150,000+. What should I do with my money?
25 March 2021
Question by Chris
I’m due an inheritance of £150,000+. I’m 46, no kids, single and I’ve paid off my mortgage - flat is currently worth approx £155,000. I have zero debt.
Main focus is on financial freedom and being able to retire early and use compounded interest to my advantage, drawing down a passive income to live off eventually. I’m due a further inheritance in Spring 2021, although unsure whether this will be a four or five figure sum (probably not relevant at the moment). I’ve decided to open a Stocks & Shares ISA and put the maximum £20,000 allowance in, this will be further added to in April 2021 with another £20,000.
My question is pensions. I don’t currently have one, apart from a work pension with just a few thousand pounds in. Should I also open a private pension? My salary is low, less than £20,000 p/annum. Should I get a SIPP, or just focus on having a Stocks and Shares ISA? I’m hoping to move abroad one day, so there’s some travelling to consider. Main concern is, I don’t want a large lump sum sat in a conventional savings account with terrible interest rates with inflation eating away at it. Please help! I’m stressed just thinking about all of this.
Answered by Lee Glennan
I think you have made some good progress with this. Stocks and Shares ISAs are a great way to access returns from the stock market. You also have total flexibility of when you access the funds and can use them to provide a tax-free income in the future.
I think you might also consider a pension to run alongside your ISAs. With a pension you will get 20% tax relief at source on your contribution. There are some drawbacks. You will not be able to access the funds until you are 55 (increasing to 57) and when you do you can only draw down 25% of the fund tax free with the rest being taxable. However, if you are not planning your adventures for ten years or so it may work well. Although three quarters of the remaining fund will be taxable, you will only pay tax if you have earnings over your personal allowance (currently £12,500). If you do not have income at this stage, there is a potential scenario where you could access the funds gradually without paying tax at all. Considering you have had a boost to your savings with tax relief too, this could boost your savings through the compounding effect considerably! You might consider your current scheme as a place for your pension savings in the first instance, there may be some benefits from your employer if you add to your pension here.
There are issues if you do eventually settle abroad and we would need to consider where this might be and the impact that this would have on your savings, this aside I think pension savings would make sense for you too. Do not get stressed, it’s only money!
Lee Glennan is a Financial Planner and IFA, currently practicing in his own boutique wealth management business and serving the needs of around 100 client families. He has worked in face to face financial advice for over thirty years and is passionate about financial planning and helping clients to ‘live their best lives’. Lee is a Chartered and Certified Financial Planner and a pensions specialist focussing on the ‘at retirement’ market. He’s 51 and married with three daughters (and a female dog!).