Receiving a lump sum
You've inherited a lump sum of money from your great aunt. Or you've sold your business to your arch-rival for a very attractive profit.
Suddenly and unexpectedly coming into a large sum of money can change your circumstances considerably, and you may need financial planning to help you make the most of it.
Case study: how we helped Mrs O, who inherited a ￡500,000 lump sum
About five years ago, Mrs O became a client of ours. She was in her early 50s and her parents had both recently died, leaving her a ￡500,000 lump sum. Both her children were at university, she was employed part time, and her husband was fully employed in industrials. They had a joint income of ￡75,000, on which the two of them could live comfortably.
Mrs O didn't want to touch the lump sum, as her main focus was to ensure she could pass it on to future generations. She wanted the income to help pay for her children’s university fees and any surplus requirements, but other than that she thought her duty was to make the sum outgrow inflation and be a rainy-day fund for the family.
We showed Mrs O how she could best meet her objectives. This started with recommending the most tax-efficient ways for her to manage her funds.
- First, we set Mrs O up with a Self-Invested Personal Pension (SIPP) to increase her pension contribution. As she only worked part-time and earned ￡12,000 a year, she could put 100% of her income into the SIPP, saving on tax. Under current pension rules, Mrs O’s SIPP is completely outside her estate for IHT purposes and also sheltered from income tax and capital gains tax (CGT).
- We also set up an ISA to which she could add the maximum amount each year (according to each respective year’s allowance), again protecting her investments from potential income tax and CGT.
- The rest of the money was managed within Mrs O’s investment portfolio.
This strategy has worked well for Mrs O. She has now accumulated over ￡100,000 in both her SIPP and ISA, and her portfolio is positioned well for the market. Her husband has recently retired and we've reviewed and consolidated his pension funds.
IMPORTANT: Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.