In laws receiving inheritance in UK- question about investing

[gettingtoyes]

In-laws live in the UK (I am American, spouse is dual citizen) and will receive an inheritance of about 90,000 pounds. They are in their late 50s, early 60s and have retired, although they don't have access to a pension for a few years.

They are unsure what to do with this money- they will now have a budget shortfall of about 700 pounds per month as the government was paying them to help care for the relative that passed (and subsequently gave them the inheritance). This will last for about 10 years until they receive access to their pensions. They are not very familiar with the stock market and while they initially thought about putting this in a savings account, interest rates have dropped down quite a bit. For the American contingent, UK saving account interest rates historically are actually pretty good, I think like 3-4%.

Anyway...I have been trying to educate myself on how retirement/assets/stock market/etc work in the UK. Does anyone have advice on how to best invest this $$? I see that Vanguard actually allows UK investors, but need to look further into this. I just think it would be a shame for them to spend all of the capital in the 10 years while awaiting their pensions to kick in.

[Moonwaves]

The UK tax section is actually used for general UK-related questions as well as specific tax questions. It would be a useful source of information for you and you might even consider having this thread moved over there for a wider UK-based audience.
https://forum.mrmoneymustache.com/uk-tax-discussion/

[Playing with Fire UK]

S&S ISAs will keep the growth and dividends tax free. They can each put £20k in per tax year (so £40k between them before April and another £40k after 6th April). Monevator will lead you to the cheapest S&S ISA provider for them.

If they haven't withdrawn money from pensions before (as in the UK use of "pension": a Direct Contribution scheme or SIPP), they can top up their pensions and get a 25% top up from the government, and are able to withdraw whenever they need as they are both over 55. If they have no earned income at all, they are limited to paying in £2,880 a tax year each. There are rules on recycling this money in and out of the pension and charges for SIPPs will be higher than S&S ISAs.

Agreed with Moonwaves that the UK Tax board will be more useful.

[gettingtoyes]

thanks, sorry I must have missed that forum. I'll do some more research and in the meantime, will see if I can get this thread moved.

[skip207]

I would be looking at ISAs.  Vanguard would be my choice.
You can invest £80k in short order as we are at the start of a new year so you can do £40k now and £40k in April.
Assuming its a couple rather than a single person.
If it were me fire it into Vanguard and forget about it.
Get your skates on though.  You need to make the first 40k before April and then the second 40k can be once we are clear into a new tax year.  Otherwise if you miss the first payment it will be a year before you can invest again.

Pensions are another option, but a much much more complex discussion.

Other than that, for security but at virtually zero return you could throw it all into 2x NS&I accounts and get 1% if you are lucky.

[PhilB]

A sustainable drawdown rate on that amount won't be enough to plug the shortfall in their budgets so I'm afraid they probably have little option but to spend most of the capital unless they find another source of income - getting a job or letting a room say.  If they are having to spend it then given the short timescale it would be very risky to invest in growth assets.  Cash or bond ladders would seem much more appropriate.

The first thing to do is to make sure that they have got state pension forecasts and pay any necessary voluntary National Insurance contributions to get those pensions up as near to the maximum as possible.

For the one who's in their early 60s their state pension age will be 66.  If their state pension is near full then it will plug the shortfall they currently have when it starts.  If it's a six year gap until their pension then the £700 a month shortfall totals £50k so that's probably the right kind of sum to be planning on burning through and therefore holding in cash / near cash.  The remaining £40k could be invested to give a long term income of say £100 to £130 a month.

[daverobev]

90k available, 700 x 12 x 10 = 84k spent.

So they are about 'right' excluding inflation. If they can cut their expenses a little, and assuming the pensions they will get are sufficient, they should be absolutely fine.

The best they can do is put all of that into Premium Bonds (currently giving an average return of about 1%) to ward off inflation a little. Over a 10 year period they really shouldn't be investing any/much of that money in stocks.

Premium Bonds are dealt with by the government so are as safe as you can get. They are also tax free in the UK.

https://www.nsandi.com/products/premium-bonds