Most of us assume we would be delighted to receive a substantial sum of money. It’s fun to make that mental list of extravagant purchases such as holiday homes or your dream two car garage. However, while it’s a nice problem to have, it can be daunting. This is particularly true where the money is unexpected.
Whether it has come about from the sale of a business, disposal of property, an inheritance, or a ‘win’, there is plenty to think about.
A good place to start would be to consider some fundamentals:
Having the answers to these questions will allow you to consider more options for achieving your goals.
Unless you intend to spend all your new-found wealth immediately, you should think about the safest place for it, for now. Your bank will have options and should be covered by the Financial Services Compensation Scheme, though you should always check. Currently this ‘stands at £85,000 per person, so £170,000 for a joint account’, with a very useful ‘temporary high balance’ limit of £1 million for six months.
There are other options for holding cash on deposit so it’s well worth seeking advice to find the best rates currently available.
Having sufficient funds to pay off any debt is a nice position to be in and repaying high-interest debts such as second mortgages, loans and credit cards makes sense.
We have no control over interest rates and inflation, the two factors which have the most impact on deposit savings.
So, while keeping some funds readily available to meet every day needs is essential, there are better options for growing your capital and creating an income.
This is where a financial adviser can help you choose the most suitable areas to invest in based on your attitudes and goals. They can also help simplify the vast amounts of investing information that exists into clear advice that suits your investment objectives.
It’s important to remember that investments are not risk-free, and you could get back less money than you originally invested. However, the potential gains can be much greater than leaving your money in a low-interest savings account.
Often considered as something to be addressed in later life, a will sets out the ‘who gets what’ from your estate after you have gone. But if the unexpected happens before you have made your will, or if your estate has increased significantly and you haven’t updated your will, your wealth may not be distributed in the way you intended.
A sudden increase in the value of your assets will almost certainly bring with it a potential Inheritance Tax liability. Fortunately, HMRC provide a number of options for making gifts during a lifetime, all of which can reduce that liability.
You have the opportunity to use these options for the benefit of others. For example, funding children’s and grandchildren’s education, providing a helping hand onto the property ladder, settling outstanding university fees, and setting up pensions.
Anything you give away more than seven years before your death is exempt from IHT. You can give away up to £3,000 each year IHT-free and small gifts of up to £250 are exempt as well. You could make larger, regular gifts, tax free, but these must also be from income, and you are required to demonstrate that they do not impact your standard of living.
If you decide to invest, any regular income and interest from those investment could be included in your income, but you will need specialist advice to make the best use of this allowance.
There’s a lot to consider, but that’s where we can help. We can make sure that any sudden windfall you receive really is a nice problem to have.
The value of pensions and investments can fall as well as rise. You may get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.
Inheritance Tax Planning is not regulated by the Financial Conduct Authority.
Advice on wills/will writing is not regulated by Financial Conduct Authority.
Cash deposits are not regulated by the Financial Conduct Authority.
Approver Quilter Wealth Limited & Quilter Mortgage Planning Limited. 04 May 2023
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