Wealth Check: 'How can I make the best use of a six-figure inheritance?'

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Kate Winter runs her own PR agency from home. All her income is spent on day-to-day living, with no real savings. However, she recently inherited a substantial sum.

Kate Winter runs her own PR agency from home. All her income is spent on day-to-day living, with no real savings. However, she recently inherited a substantial sum.

She has given £15,000 to relatives and bought another car for £5,500. Other than that, she says she does not really "need" the money now. She would like to pay for her 11-year-old daughter to go to a private school.

Ms Winter would also like to educate her son, now four, privately when he is 11. She wants to manage the rest of the money so that it provides security and perhaps the odd holiday in the future.

We put her case to Patrick Connolly at John Scott and Partners, Matt Pitcher at Towry Law Financial Services, and Darius McDermott at Chelsea Financial Services.


Salary: around £40,000.

Debt: Barclaycard: £5,000. Overdraft: £1,500.

Property: Repayment mortgage with Abbey of £155,000 on home.

Savings: Six-figure sum from a recent inheritance, currently with ING Direct.

Investments: None.

Pension: None.

Monthly outgoings: Bills £360. Mortgage £900. Phone £30. Kids' shopping £100. Meals out and cinema £100. Food £125 a week. Nursery fees £700 a term. Childcare £30 a week.


Ms Winter currently has her lump sum all with one bank. Although ING is competitive there are better deals. If Ms Winter is happy to save online, Egg offers 5.5 per cent and Alliance & Leicester 5.35 per cent.

Ms Winter should consider how much she will need to save for her children's education, and put that aside. Cash or fixed interest savings offer security, along with some growth.

Mr Connolly recommends that Ms Winter puts the money for the first two years of her daughter's education into a "no risk" deposit account. After this, Ms Winter could look at National Savings & Investments' two-year savings certificates and three-year index-linked certificates. These are tax free, and as Ms Winter is a higher-rate taxpayer, this makes the rates competitive. There are also five-year standard and index-linked certificates. If Ms Winter used all these, she could set aside £60,000 for the school fees.

Mr Pitcher says Ms Winter should aim to have an emergency fund of between £20,000 and £40,000 in a high-interest, instant access savings account, such as her existing account with ING.


Mr Pitcher says that Ms Winter could be in a position to pay off her mortgage - although this will depend on the other calls on her money. If she were to do this, however, it would have the same effect as savings or investments paying between four and five per cent, after tax. Ms Winter should also pay off her credit card and overdraft.

Mr McDermott says that Ms Winter's mortgage will account for a great deal of her monthly income. Freeing this money up will allow for more scope for savings, although Ms Winter should check whether redemption penalties apply to her loan.

Mr Connolly says there is no point in holding on to cash if it earns less than the interest charges on debts. Once Ms Winter has paid off her debts, and worked out how much she needs to set aside for school fees, she can then start to plan an investment strategy for the balance of her inheritance.


As a higher-rate taxpayer, Ms Winter will receive full tax relief on her contributions, says Mr Pitcher. At her age, she can pay 20 per cent of her gross earnings into a pension. From 2006 she would, potentially, be able to save her entire salary and still receive tax relief.

Mr McDermott says that although Ms Winter should be able to invest her inheritance so it produces an income, he recommends that she take out a pension, too. Legal & General offers a good range of funds and is financially strong, he says.

Mr Connolly says that Ms Winter could consider a fund-of-funds investment, as this is suitable for investors who may not want to spend too much time monitoring their funds.

Mr McDermott says she should use her full £7,000 stocks and shares Isa allowance if she does not open a mini cash Isa. She should use this to invest in core equity funds. But she can also put money into unit trusts outside of her Isa allowance. Mr McDermott likes the Rathbone Income fund, Framlington Equity Income fund, and Invesco Perpetual High Income fund.

Mr Pitcher says Ms Winter could invest with up to 15 different unit trust managers across a range of UK, European, American and fixed interest funds.


Ms Winter must consider financial arrangements for her children should anything happen to her, by taking out life assurance and possibly critical illness cover, says Mr McDermott.

Advisers' views are given for guidance only.

* If you would like a financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk

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