What should I do with a lump sum after using up my ISA allowance?

Hi,

I am 62 and have been left an inheritance. I estimate that I will have £400,000 for investing over the next month, after paying off some debt, and reducing the mortgage rather than paying it off due to early repayment charges.

I am risk-averse, but still want to invest the £400,000 in assets that will provide monthly income to supplement my part-time work as a teacher, but also to provide for mine and my wife's old age. We have used our ISA allowance for this year but don't know what else to consider/research, as we have not had this amount of spare cash before.

We know it is important to get professional advice, but feel we want to be a bit involved rather than just passively following what an adviser says.

Any help would be much appreciated.

This question really gets to the heart of financial planning. The answers will depend on a few factors specific to you, but I will try and set out the variables.

You have wisely focused on paying off debts first. Ensuring you have a healthy buffer of cash for emergencies should also come before investing.

You will then need to figure out the right balance between supporting your current lifestyle and starting to generate wealth through the compound interest on an investment. This will depend on your own capacity for risk as well as your income and expenditure.

A portion of your windfall should likely be in a diversified portfolio of global equities. While you have said you are naturally cautious, balancing the risk of your money being eroded by inflation with the risk of suffering investment losses is more finely graded than most people initially think. If your goals are long-term, you are likely to be better off in financial assets than cash as inflation is likely to be a bigger risk.

You need to consider the different wrappers you can put around your investments. This would include considerations over pensions and ISAs, amongst other things. With that level of investment (£400,000) there is a real prospect of paying Capital Gains Tax on any investment gains and so shielding the money from this would be wise. It will likely take several years to appropriately structure this wealth in the best way, so thinking about your future tax advantaged allowances is worth doing.

You are also at an age where you can benefit from tax relief on your earnings but can also draw your pension immediately. Although you are restricted by your joint earnings, it is possible you could make a significant dent here. There are other more complicated products that could shield your assets and deliver an income, but you would certainly need to take more involved advice.

You are in the fortunate situation where you can easily afford advice. It is likely to pay for itself based on the investment and tax planning you need. I would encourage you to go down this route and find someone trustworthy and independent. Perhaps ask a friend or family member.

Hope this helps.