Inheritance incoming!
Discussion
Hi folks,
I'm due to be the beneficiary of some inheritance this year and I'm looking for some viewpoints on what you would do with it if you were in my position.
The inheritance is going to be £100k.
Situation is: I currently have a 2 bed house worth c.£400k - £450k (I think, based on previous valuation a year ago when it was estimated £450k by one estate agent). My wife and I have one daughter aged 2.5 and another baby due to arrive in May. So we're likely to want to move house to a 3 bedroom place eventually. It'll be ok living in our current place for the time being but I'm sure we'll outgrow it in due course - especially as the second bedroom would be a bit of a squeeze for two children to share.
Current remaining mortgage on our house is £91k with a 5% charge for early repayment.
So, I'm pondering what to do with the £100k. Options are:
1. Pay off mortgage and pay c.£5k for the privilege
2. Pay off the max. 10% for the year without incurring any charges and then stick the rest in a bond for a year
3. Look at moving houses now and use the £100k as an added deposit to our c. £300k equity in current house
4. Rent out our current house (neighbours are renting theirs for £1,250 per month as a guide), and use some equity and inheritance towards new house
Thoughts?
I'm due to be the beneficiary of some inheritance this year and I'm looking for some viewpoints on what you would do with it if you were in my position.
The inheritance is going to be £100k.
Situation is: I currently have a 2 bed house worth c.£400k - £450k (I think, based on previous valuation a year ago when it was estimated £450k by one estate agent). My wife and I have one daughter aged 2.5 and another baby due to arrive in May. So we're likely to want to move house to a 3 bedroom place eventually. It'll be ok living in our current place for the time being but I'm sure we'll outgrow it in due course - especially as the second bedroom would be a bit of a squeeze for two children to share.
Current remaining mortgage on our house is £91k with a 5% charge for early repayment.
So, I'm pondering what to do with the £100k. Options are:
1. Pay off mortgage and pay c.£5k for the privilege
2. Pay off the max. 10% for the year without incurring any charges and then stick the rest in a bond for a year
3. Look at moving houses now and use the £100k as an added deposit to our c. £300k equity in current house
4. Rent out our current house (neighbours are renting theirs for £1,250 per month as a guide), and use some equity and inheritance towards new house
Thoughts?
Option 1 seems a daft thing to do if your thinking you'll move anyway.
Option 2 is a good idea if not planning to move within a year.
Option 3 - no time like the present as generally houses only get more expensive over time whereas your £100k will be worth less (though Brexit concerns might play a part). Though with a baby due soon you might not want to be moving right now.
Option 4 - investing in property is no bad thing but if it will mean you'll end up compromising on your family home due to having a smaller deposit then maybe not. This one is for you to weigh up really. Renting out a place isn't just free money either, factor in the hassle of it (e.g. you don't get good tenants), as well as the financial implications.
Wish I had £100k incoming, mortgage freedom would be mine!
Option 2 is a good idea if not planning to move within a year.
Option 3 - no time like the present as generally houses only get more expensive over time whereas your £100k will be worth less (though Brexit concerns might play a part). Though with a baby due soon you might not want to be moving right now.
Option 4 - investing in property is no bad thing but if it will mean you'll end up compromising on your family home due to having a smaller deposit then maybe not. This one is for you to weigh up really. Renting out a place isn't just free money either, factor in the hassle of it (e.g. you don't get good tenants), as well as the financial implications.
Wish I had £100k incoming, mortgage freedom would be mine!
Bear in mind that with option 4, you'll have to now pay a stamp duty surcharge on the new home you move into and will also pay more tax on the rental income, thanks to the tax changes that are now hitting mortgaged buy-to-lets.
Option 4 was the strategy I was going to do a couple of years ago but it no longer makes sense in my circumstances.
Option 4 was the strategy I was going to do a couple of years ago but it no longer makes sense in my circumstances.
Have you and your wife paid any income tax this year? Would you have preferred not to? You could consider using some of the inheritance to pay into a pension, and receive a 20% top-up. HMRC would consider the money to have been received as income, and therefore pay a top-up of the tax you would have paid. If you are a higher rate tax payer then you'd get a rebate.
Noting wrong with this - after all, you could have chosen to not take the income and live off the inheritance.
You would have to wait until you're 58 to get access to the money though!
Maybe tuck some money away for the children in Child ISAs. Again they'd have to wait until they are 18. It would be a nice thing to say when they are 18 that the inheritance helped them go to uni.
Noting wrong with this - after all, you could have chosen to not take the income and live off the inheritance.
You would have to wait until you're 58 to get access to the money though!
Maybe tuck some money away for the children in Child ISAs. Again they'd have to wait until they are 18. It would be a nice thing to say when they are 18 that the inheritance helped them go to uni.
WhiskyDisco said:
Have you and your wife paid any income tax this year? Would you have preferred not to? You could consider using some of the inheritance to pay into a pension, and receive a 20% top-up. HMRC would consider the money to have been received as income, and therefore pay a top-up of the tax you would have paid. If you are a higher rate tax payer then you'd get a rebate.
Noting wrong with this - after all, you could have chosen to not take the income and live off the inheritance.
You would have to wait until you're 58 to get access to the money though!
Maybe tuck some money away for the children in Child ISAs. Again they'd have to wait until they are 18. It would be a nice thing to say when they are 18 that the inheritance helped them go to uni.
I've paid income tax but my wife's not worked since Jan 2018. I think the more pending requirement of a bigger home is our priority although my pension pot is miserably small I think.Noting wrong with this - after all, you could have chosen to not take the income and live off the inheritance.
You would have to wait until you're 58 to get access to the money though!
Maybe tuck some money away for the children in Child ISAs. Again they'd have to wait until they are 18. It would be a nice thing to say when they are 18 that the inheritance helped them go to uni.
If possible use some(half) of the money to extend your current home the benefits are two fold, one you don't have to pay up to 20k in duty and legals to move and two you don't have to stress the family moving to another home.The rest you could pay down the mortgage with and in 5-7 years time you will own outright a 500k plus 3 bed home in your part of the world.
JuanGandini said:
I've paid income tax but my wife's not worked since Jan 2018. I think the more pending requirement of a bigger home is our priority although my pension pot is miserably small I think.
A little known fact is that it's possible to get 20% tax relief on pension contributions with no evidence of having worked or paid the tax in the first place. This is capped at £240 a month. The tax man tops this up by £60. You could literally win £2880, pay it into a pension and the tax man would give you £720 extra.Superflow said:
If possible use some(half) of the money to extend your current home the benefits are two fold, one you don't have to pay up to 20k in duty and legals to move and two you don't have to stress the family moving to another home.The rest you could pay down the mortgage with and in 5-7 years time you will own outright a 500k plus 3 bed home in your part of the world.
Would love to do this but alas our house has been extended already before we moved in (pitched roof ground floor jobby so no more scope to extend further).JuanGandini said:
Gary C said:
Move oop t'north
£450,000 would buy you a 5 bed
Ha! Very true. I think having the kids' grandparents within a ten minute drive will remain very useful / beneficial though! £450,000 would buy you a 5 bed
TheAngryDog said:
JuanGandini said:
Gary C said:
Move oop t'north
£450,000 would buy you a 5 bed
Ha! Very true. I think having the kids' grandparents within a ten minute drive will remain very useful / beneficial though! £450,000 would buy you a 5 bed
if you are youngish then I would keep yourself mortgaged up. Investment property isn't that exciting with regard to returns (less than 3% on your figures once you have taken out some costs) and these days you aren't going to get much capital appreciation if anything. You have missed the classic car boom so you can't expect good returns from that, although it would be more fun than reducing your mortagage or buying a house/ flat to rent. I would get some investment advice and spread it out remembering that you already have most of your money in property. Keep back a part of it and spend it on something indulgent like a Rolex, something you will remember that person with and keep forever. The right Rolex would be a good investment anyway over time.
Edited by Jonny TVR on Tuesday 5th March 09:48
I'm a big fan of filling stocks and shares ISAs.
While you and your wife are limited to stuffing £20k in each tax year each, the money is protected from capital gains and income tax. Once you've got £100k in ISAs and say you get a 3.5% div yield then you've got £3.5k income a year (or £291 /month) tax free for life (assuming the govt doesn't change the rules in the future). Might not be the answer for you but i'm a big fan of stuffing the ISAs.
That said the most sensible answer is a combination of a few things:
- Over pay the current mortgage by the max 10% / year
- Max out your ISA allowance for the next 2/3 years
- Stuff a sizeable chunk in your pension pot (your future self will thanks you)
- Stick something in ISAs for the kids
While you and your wife are limited to stuffing £20k in each tax year each, the money is protected from capital gains and income tax. Once you've got £100k in ISAs and say you get a 3.5% div yield then you've got £3.5k income a year (or £291 /month) tax free for life (assuming the govt doesn't change the rules in the future). Might not be the answer for you but i'm a big fan of stuffing the ISAs.
That said the most sensible answer is a combination of a few things:
- Over pay the current mortgage by the max 10% / year
- Max out your ISA allowance for the next 2/3 years
- Stuff a sizeable chunk in your pension pot (your future self will thanks you)
- Stick something in ISAs for the kids
JuanGandini said:
My wife and I have one daughter aged 2.5 and another baby due to arrive in May. So we're likely to want to move house to a 3 bedroom place eventually. It'll be ok living in our current place for the time being but I'm sure we'll outgrow it in due course - especially as the second bedroom would be a bit of a squeeze for two children to share.
As someone who bought a few years back - rental to private - for precisely this reason [child], then you know that "due course" will arrive sooner than you think. You probably don't want to do anything just yet because you'll need to focus on your imminent new arrival and supporting your partner. However, I suspect that you will want to be moving either end of the year or early next year? Certainly before you need to apply for primary school for your daughter.Given that you need to sell before you can buy and will almost certainly be in a chain, then realistically you will not be finding a property, selling your property and everyone completing and moving in before the baby is due.
It sounds like it boils down to either option 1 or 2 - whatever is more financially advantageous for you based upon realistic timescales.
Edited by putonghua73 on Tuesday 5th March 11:18
putonghua73 said:
JuanGandini said:
My wife and I have one daughter aged 2.5 and another baby due to arrive in May. So we're likely to want to move house to a 3 bedroom place eventually. It'll be ok living in our current place for the time being but I'm sure we'll outgrow it in due course - especially as the second bedroom would be a bit of a squeeze for two children to share.
As someone who bought a few years back - rental to private - for precisely this reason [child], then you know that "due course" will arrive sooner than you think. You probably don't want to do anything just yet because you'll need to focus on your imminent new arrival and supporting your partner. However, I suspect that you will want to be moving either end of the year or early next year? Certainly before you need to apply for primary school for your daughter.Given that you need to sell before you can buy and will almost certainly be in a chain, then realistically you will not be finding a property, selling your property and everyone completing and moving in before the baby is due.
It sounds like it boils down to either option 1 or 2 - whatever is more financially advantageous for you and based upon realistic timescales.
TheAngryDog said:
JuanGandini said:
Gary C said:
Move oop t'north
£450,000 would buy you a 5 bed
Ha! Very true. I think having the kids' grandparents within a ten minute drive will remain very useful / beneficial though! £450,000 would buy you a 5 bed
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