Possible use of lump sum inheritance - upsides, downsides, alternate views

tedcrilly

Registered User
Messages
13
Age: 47
Spouse’s/Partner's age: 44

Annual gross income from employment or profession: 100K
Annual gross income of spouse: 0

Monthly take-home pay
4440
(Not married so not taxed jointly but doing so in next few months)

Type of employment: e.g. Civil Servant, self-employed

Employed in private sector.

In general are you:
(a) spending more than you earn or (b) saving

On one salary – not regularly saving - marginally overspend/underspend - month to month.
Savings are in lump-sum and in maximising pension contributions

Rough estimate of value of home: 450 K

Amount outstanding on your mortgage: 160 K

What interest rate are you paying?

.6 % above ECB tracker (12 years left)

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?

Yes

If not, what is the balance on your credit card?
n/a

Savings and investments:


Partner has 150 k (but no pension)

Children each have 35 k set aside

Do you have a pension scheme?
Yes – Employer 13 % / Employee 7 % maximising contributions – current value circa 260K

Do you own any investment or other property?
No

Ages of children:
7 & 9

Life insurance:

Yes – 360,000 + death in service work cover

What specific question do you have or what issues are of concern to you?
In the coming months going to receive a significant amount of money due to passing of a close relative. Could be 700-750k after tax. We fully appreciate this is a relatively life changing amount for our family – presenting us with options and challenges on how to best manage/use/invest this.

We had also been considering a move to a larger home in same area, as kids are growing and current house is tight. We are resigned to the fact a larger 2nd hand home in same area could cost 650-700 K and may involve further spend to upgrade, bringing it to 800 k – with other old problems and other peoples’ history (lessons learnt from 1st purchase), likely below modern energy standards and 12-18 months planning/construction journey.

A potential option has materialised of purchasing a new build property - a 4-bed 3 storey house for 880k, with plenty of room for growing family and room for overseas family to stay.

I would appreciate views on the following option. To use lump sum to purchase new property leaving small mortgage on this – and to retain the current home for rental property.

Using rough calculations and average rental prices – the rental income on original property could be 1800-1900 – which would cover current mortgage on this property leaving € 6-700 headroom for tax and future ECB rate increases. We would hope this may also yield some amount ‘000 to fund paying down principle on the tracker mortgage and/or contribute towards funding mortgage on 2nd new property.

Reason for considering retaining original property is due to the (currently) advantageous tracker rate and also considering it as a possible downsizing location in future years – and hopefully future continued increase in value in line with projected population and economic growth.

This appears to be one very practical option for us – and if not this would have to find other investment vehicle(s). The decision is not solely based on maximising return as we want this to benefit our family in the now and near term.

We appreciate this would leave majority of assets in Irish property but with some other investments in mutual fund, a good sized pension continuing to accumulate, and good amount of savings set aside for children.

There is also a further future potential inheritance in years to come.

As always interested in views, wisdom and alternate options of the AAM audience.
 
Another option if you want a high exposure to Irish property might be to use the current equity in your house plus the inheritance to get an even better house ( not necessarily bigger ) e.g sea view ?, better location ? if that interests you ... you could always downsize by selling up later, although you lose rental income of course and you would have a huge exposure to Irish property.....Not for the faint hearted or the risk averse.

It would be worth getting tax advice if you haven't already re inheritance tax etc particularly if money is coming from overseas and as 1 (or both?) of you it appears are not Irish.
 
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I really think that the risk issue is over stated.

If you expect to live in the new house for 20 odd years, then what risk is attached to that.

If you keep the old house as an investment property, the mortgage payments are realistically not likely to rise so that it becomes cashflow negative.
 
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