Yesterday marked my return to blogging after a 2 month hiatus and I posed the question about what would you do with a tax free £1m if you received it right now. Read it here
I woke up this morning at 5 thinking about many things, checking my emails and all the things you really shouldn’t do if you want any chance of going back to sleep.
My mind wandered back to this and I realised my gut feel didn’t take into account a few important factors. Namely these:
- We might have a 2nd child – quite an important oversight but this is on the horizon hopefully within the next few years. Whilst i don’t believe they cost as much as everyone says (assuming you don’t private school them and they don’t go to university), they will need to be factored in. This leads me onto…
- I had forgotten my son’s Junior ISA. Currently we pay in £100 a month to give him a good start once he’s 18. I would strongly encourage him to not touch that when he’s 18 and strive for financial independence with my guidance and let compound interest work its magic. Anyway, i digress, I would boost this to the maximum £4,260 per annum. Some quick calculations (assuming 9% YoY growth) – I’m using Vanguard LifeStrategy 100% for those interested would mean (inflation adjusted) £120k at the age of 18. If he didn’t touch that (or add to it) AT ALL, when 50, he would, in theory, by financially independent. Assuming he’s employable and able to save something from 18 onwards, this should only improve drastically. Enter child number 2 hopefully, and this annual outlay is doubled to £8.5k.
- My wife would never, ever, let me get away without spending money on the house. We’ve bought something structurally pretty good but it could use £70-80k to get it configured better for us and updated. We think the work would add value but not a huge amount, but justifiable.
- The other adjustment i would make to my original plan is to pay off the mortgage entirely. Getting the outgoings down takes far more pressure off and whilst probably not the best way to maximise the money, it represents a spread of risk away from solely investment strategies and any potential headwinds in the near future (ie. Brexit etc)
- Now, i need some help, the big outstanding question i have is not what to invest in with the remainder, but when to invest it. Do I do as i said yesterday and add my max ISA allowance each year and drip feed and in theory sacrifice growth over time, but have no tax considerations, or do you invest it all in one go, maxing out the ISA allowances but then investing in general fund and share accounts for the rest. This means clearly if i drawdown and make profits above my allowances i will have to pay tax.
My question this: What is the best strategy? If i took option 2 (invest all at once, not all in a tax wrapper), can i transfer 40k each year into the ISA account? Would this be possible, even?
Then there is my SIPP – should i drip some into that every year (max £40k) instead to get around the tax? Obviously i then cannot touch it for 17 years until im 57 (at the moment anyway) and then cannot get access to all of it without a tax penalty…