What to do with a windfall?

Many of us spend time thinking of all the things we would spend our money on if we were in the fortunate position of receiving an unexpected windfall.

According to research[i], 32% of people say they have received a windfall with £34,000 the average amount. The most common sources were inheritance (57%), bonuses (20%) and gifts of money (12%). Interestingly, £648 is the tipping point at which people (51%) consider saving the money rather than spending it. As might be expected, the figure increases with larger sums – 5% say they would save rather than spend if they were to receive £5,000 unexpectedly.

How to make your money work for you
So, if you’re lucky enough to find yourself with a sizeable sum, and want to make it work hard for you, what steps should you take? Good financial planning is the key. Your adviser will be able to help you review your current financial situation, your goals, short and long-term plans, assets and liabilities. They can then recommend on strategies that could include paying off debt, reducing or paying down your mortgage, building up your pension and investing for your family’s future.

Getting a plan in place
If you want to save rather than spend your new-found wealth, you should start by making the best use of tax-free allowances such as your Individual Savings Account (ISA) limit of £15,240 (for tax year 2015-16). With interest rates currently low, putting all your savings into a cash account leaves it vulnerable to erosion from inflation, so it’s worth considering investing at least part of your cash in a stocks and shares ISA for longer-term growth.

You should think about adding cash to your pension, enabling you to claim the valuable tax relief available on your
contributions – 20% for basic taxpayers, 40% for higher-rate taxpayers.

If your increased wealth means that on your death, Inheritance Tax would be payable on your estate, your adviser will be able to discuss the annual allowances and planning techniques available that can substantially reduce the amount of tax payable by your heirs.

Investing for the future
You could decide to invest your money to produce an income, or adopt a strategy that aims for capital growth, or a balance of the two. Your adviser will guide you in setting investment goals and help you consider and define your attitude to risk. A review of any existing holdings you may own, your family circumstances and tax position would be the starting point for developing an investment portfolio from your windfall.

[i] Research for GE Capital Direct carried out by Populus

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The value of pension and investments can fall as well as rise. You may get back less than you invested.

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