What would you do with £100k?

[SteveC72]

I know this kind of thing comes up a lot, but a mate has been left £100k inheritance from his dad. His plan is to put £20k in his cash ISA and put the rest in a savings account.

I reckon if it was me I’d maybe look at buying a property to Airbnb but I’ve got more spare time than him, so out of curiosity I started to wonder what exactly someone could do with £100k to earn a half decent return?

Grateful for any feedback.

TIA

ETA he’s got no mortgage or any kids/loans/debt

Edited by SteveC72 on Tuesday 11th October 21:58

[caziques]

I would "invest" in energy savings - heat pumps - insulation - EV etc etc.

Use capital to reduce ongoing energy costs

[loskie]

If he can tie it up put a chunk into a pension and benefit from the tax rebate

[DonkeyApple]

caziques said:

I would "invest" in energy savings - heat pumps - insulation - EV etc etc.

Use capital to reduce ongoing energy costs

Absolutely. Spend £20k to save £100.

[bitchstewie]

How much does the £100K meant to him?

To some people it's a life changing amount to to others it's "just" another £100K on the balance sheet.

If it's the former I wouldn't be taking punts or engaging in pet projects I'd just be investing it sensibly and taking advantage of tax wrappers.

[DonkeyApple]

SteveC72 said:

I know this kind of thing comes up a lot, but a mate has been left £100k inheritance from his dad. His plan is to put £20k in his cash ISA and put the rest in a savings account.

I reckon if it was me I’d maybe look at buying a property to Airbnb but I’ve got more spare time than him, so out of curiosity I started to wonder what exactly someone could do with £100k to earn a half decent return?

Grateful for any feedback.

TIA

ETA he’s got no mortgage or any kids/loans/debt

Edited by SteveC72 on Tuesday 11th October 21:58

It's impossible to put much forward without a bit more info. As Loksie says, the pension route is potentially the biggest returns for the lowest risk as usual but it depends on whether he is 15 or 50 years old, paying much income tax or hoping to in the future.

Property looks completely off at the moment. Debt rates have just jumped and disposable income is about to get hoovered by heating costs. It's hard to see a robust case for firm values and low customer risk.

We could also look at the ISA and ask what purpose would the wrapper serve? Millions of people have bought these wrappers despite the reality they were never going to be utilising the benefits. It's important to always know what the tax savings are of an ISA and whether you're ever going to have those taxes levied on you in the first instance. As far as I'm concerned the ISA is one of the largest financial miss selling cases out there.

What's your colleagues age, income, future income expectation, family plan and life ambitions?

[steveo3002]

50 in premium bonds , rest in instant access account for about 2% and be ready to move it if and when intrest goes up over the next few months , possibly lock some away when you think its a good deal

[Phooey]

DonkeyApple said:

As far as I'm concerned the ISA is one of the largest financial miss selling cases out there.

Never heard this one before. Why?

[GR86]

Look for best interest on savings account, wait for the recession then buy either stocks, bigger house, classic car, BTL etc.

[okgo]

Phooey said:

Never heard this one before. Why?

Presume most people never get near the amount required to actually make use of tax free status?

[DonkeyApple]

Phooey said:

DonkeyApple said:

As far as I'm concerned the ISA is one of the largest financial miss selling cases out there.

Never heard this one before. Why?

Because they've been sold actively without the vendors considering whether the end customer actually needs shelving from tax. At the lower end of the market they've been used as a customer retention tool more than as a valid tax tool.

You need quite a large pot before CGT becomes an issue and the income tax savings are often extremely negligible on some portfolios.

[bitchstewie]

DonkeyApple said:

Because they've been sold actively without the vendors considering whether the end customer actually needs shelving from tax. At the lower end of the market they've been used as a customer retention tool more than as a valid tax tool.

You need quite a large pot before CGT becomes an issue and the income tax savings are often extremely negligible on some portfolios.

But if you're a normal retail punter with (say) £5K spare to invest or do "something" with why would you NOT take full advantage of that ISA wrapper?

I get that they may be pointless for some peoples situation but mis-selling seems a very strong term?

[OutInTheShed]

DonkeyApple said:

Phooey said:

DonkeyApple said:

As far as I'm concerned the ISA is one of the largest financial miss selling cases out there.

Never heard this one before. Why?

Because they've been sold actively without the vendors considering whether the end customer actually needs shelving from tax. At the lower end of the market they've been used as a customer retention tool more than as a valid tax tool.

You need quite a large pot before CGT becomes an issue and the income tax savings are often extremely negligible on some portfolios.

Not sure many people have actually lost very much by putting money into a decent ISA compared with saving outside a tax shelter.
We should bear in mind that ISAs and before that PEPs and TESSAs have been around a long time while tax on savings has chopped and changed.

For me, one big positive of a shares ISA is that I can own a whole range of shares without doing any tax paperwork.
That alone would be saving a lot of people significant money. I personally am too 'careful' to pay an accountant of course.

Any product, some customers will have bought it for the wrong reasons after seeing some advertising, that's probably true of everything from savings schemes to cars, houses, consumer junk.

There is mis-selling but people need to be adults and think before buying.

[gazapc]

SteveC72 said:

. His plan is to put £20k in his cash ISA and put the rest in a savings account.

Surely cash saving means he is going to lose value over the medium and long term.


If he needs the cash in the short term, yes cash savings/premium bonds might be OK as a temporary store, but otherwise i'd be topping up pension and S&S ISAs.

If I was getting an inheritance I would also spend a portion on practical home improvements and then something more fun - whether that be a car/bike/holiday etc...

Edit: as pointed out above, age, other income sources and savings will change what is 'best'.

Edited by gazapc on Wednesday 12th October 10:21

[MJNewton]

If it were me I'd be thinking in part what my Dad would've wanted - particularly if there was a non-financial-reward aspect. Indeed that's what my Mum & Dad did with some inheritance from my granny - she was always interested and enthusiastic about them having a caravan and a conservatory and so that's what they went out and bought with (some of) the money. No financial return but often times when they were subsequently enjoying their purchases it gave them a lot of comfort reflecting on the fact that it was thanks to her that they could.

[GiantCardboardPlato]

Sit on it for a bit and pick up a bargain McMansion in a few years.
And retrim the interior of my car and buy a brand new sooper dooper K series engine for it.

Edited by GiantCardboardPlato on Wednesday 12th October 10:31

[DonkeyApple]

bhstewie said:

But if you're a normal retail punter with (say) £5K spare to invest or do "something" with why would you NOT take full advantage of that ISA wrapper?

I get that they may be pointless for some peoples situation but mis-selling seems a very strong term?

If the wrapper is 100% free of charge and the execution costs are the lowest in the market then yes, however, if there is any kind of cost then one must immediately assess that cost against the proposed tax gains. Which on a £5k portfolio with no yield would be zero for example.

[Countdown]

Depends where you are in terms of family/career.

For me it would go into savings until the kids needed it.

[bitchstewie]

NowWatchThisDrive said:

Yep, it's a free option on any future tax benefit that might arise from investment performance. As an alternative long-term buy and hold mechanism I could maybe see an argument for using spreadbets given the tax treatment, though not sure if the financing costs would stack up in your favour over a longer period?

But your average retail investor isn't going to know or care what a spreadbet is they hopefully just want to invest in a fund as a one off or a regular thing and be done with it.

I know HL charge differently between ISA and General accounts but far as I was aware most regular platforms don't really penalise you for using an ISA wrapper?

Curiosity on what sort of shady stuff was being pulled really as mis-selling just seemed a strong word for the sort of scenario above

[DonkeyApple]

NowWatchThisDrive said:

Yep, it's a free option on any future tax benefit that might arise from investment performance. As an alternative long-term buy and hold mechanism I could maybe see an argument for using spreadbets given the tax treatment, though not sure if the financing costs would stack up in your favour over a longer period?

Financing costs would annihilate a retail holder. The benefit lies in sub 28 days really as around that point the funding cost surpasses the stamp duty cost. You'd only use SBs longer term if you were able to elect up to professional and run them unleveraged.

If the ISA wrapper is genuinely zero cost then the argument is moot but traditionally not only have they carried an explicit fee but also re implicit costs of dearer execution. Given few U.K. taxpayers ever use their annual CGT allowances, many equities have zero yield and some providers levy fees on the wrappers there remains a need to pay attention as to whether you're buying something you're not using.