What to do with inheritance?

We have come into an inheritance of 1.5 million euros after taxes paid. How to invest it? We like a bit of conservative risk!

N.B We want to have more time in our lives the business takes up a lot of head space and time 45hrs + per week each. We still want to work just less time in it. So, I'm starting to think about exiting at some stage.

We do not want a bigger house or to move. Maybe give each kid 50k to get started on property ladder at some stage.

Details:

Me age: 54
Wife age: 50
Number and age of children: 3 ( 13,17,19)

Own business with partner: Business making an income for owners and small profit 50k per year. Cash flow in business of 100k which is ok. Business is not guaranteed into the future.

Monthly take-home pay
Me : €3,000 gross
Wife: €3000 gross

Type of employment: Self employed

Rough estimate of value of home

• €1.1 million ( renovated no need for further updates)

Amount outstanding on your mortgage:

• Zero (just cleared)

Other borrowings – car loans/personal loans etc

• None - need a car upgrade of 30k

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

• Yes

Savings and investments:

• Saving (Myself: 100k in ETFs with DAVY , 20k cash, 25k Shares on Trade Republic) , ( Wife -50k saving deposit 3%)
• €20k in college fund

Do you have a pension scheme?

• Yes Company DC scheme
• Pensions: Value - 200k each
• Contributions: 700 euros per month each

Do you own any investment or other property?

• Yes 3 investment properties - Combined value: 1.5million ( Interest only Mortgages value total 700K- 5-6.5% being charged )
• Net profit per year is 15k after taxes

Life insurance:

• 400k each

Specific questions
1. Any investment advice on what to put the money into?
2. Is there anything else I could be doing to optimize my finances to allow me to retire at 60?

With that value of investment, you need to sit down with a professional adviser, not looking for answers/suggestions from an online forum

I am not saying that the users on this forum are giving bad advice but your future financial health and wealth deserves better

dingdong22 said:

Monthly take-home pay
Me : €3,000 gross
Wife: €3000 gross

Do you have a pension scheme?

• Yes Company DC scheme
• Pensions: Value - 200k each
• Contributions: 700 euros per month each

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Looks like neither of you is maximising your contributions up to your age related tax relief limits (30% and 35% for the full year in which one turns 55)?

dingdong22 said:

Do you own any investment or other property?

• Yes 3 investment properties - Combined value: 1.5million ( Interest only Mortgages value total 700K- 5-6.5% being charged )
• Net profit per year is 15k after taxes

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A 1% net yield? That's poor.
Why are you so concentrated in Irish property with 4 properties including your PPR?

Property seems to be c. 60%+ of your overall net worth (and almost 100% before the inheritance) and yet you say that you're conservative when it comes to risk!!?

Professional advice after coming into that amount of assets is definitely a good idea.

You and your spouse have around €2.5 million in assets after your home plus pension pots of €200k each. You could realistically retire now if you chose to.

Experiences and time are far more valuable than money. In that context, I'd definitely recommend using (a sensible portion of) your wealth to go on trips you'll remember. With your resources €25k a year on holidays would be doable. Your kids will likely appreciate the memories more than the cash when it eventually comes to their inheritance.

Pay off the expensive loans on your But to Lets It makes no sense to have such expensive borrowings

You are taking very significant risks with the rentals for a very meagre return. Either clear the BTL mortgages or just liquidate the investments.

Also, your pension balances are very low given your circumstances. You should be taking every opportunity to maximise your pension contributions.

Beyond that you clearly have sufficient assets to retire now if you want.

One option that works well here given your ages would be to arrange a life interest trust over your home and or investment properties with the children holding a remainder share.

You could find that about half the value of your home would be yours using the Revenue tables. I haven’t looked it up but it would be about that.

The childrens portion could be provided by way of cash received as a gift.

You would give them say €500k between them to take their share or about €160k each.

All within the current CAT A exemptions so no tax now.

Now they would own your house but you would have a right to live in it for life. If you wanted to move or downsize you have loads of other houses. So, again, this could work well for you where it might be imprudent for other people.

On second death your children wouldn’t inherit your house as it’s already theirs and they shouldn’t pay capital gains tax either because it’s your PPR and, currently, exempt.

If the value of your house doubles over the rest of your lives your children have a €2m+ asset with no CAT or CGT to pay.

If it triples in value that’s a potential €1m in tax saved.

Edited slightly to clarify that this is a life interest trust set up by the parents with the children holding the remainder interest.


This structure would involve you both holding a life interest in your home, and the remainder interest (after the longer of your two lives) would be owned by your children.

This would involve the creation of a trust, known as a Life Interest Trust which would
hold the property for both your lives and after the death of the second of you the property would vest to your children.

For tax purposes it is important to the structure that your children pay full market value for the remainder interest in the property.

This payment could be provided by way of a gift from you.

The goal here is to split the ownership of the property between yourselves and your children. This is achieved via a computation which is based on the rules for determining the value of a life interest per the schedule of the Capital Acquisitions Tax Consolidation Act, 2003.

The computation is based on your age and therefore life expectancy to determine the value of your "life interest" with the remaining interest belonging to your children.

The costs of stamp duty and associated legal fees are split proportionately.

If you carry out this planning, your children will become absolute owner(s) of the family home on the death of the survivor without incurring any further CAT (irrespective of whether the property has increased in value by then).

Marc Westlake TEP
Registered Trust and Estate Practitioner

Marc said:

On second death your children wouldn’t inherit your house as it’s already theirs and they shouldn’t pay capital gains tax either because it’s your PPR and, currently, exempt.

If the value of your house doubles over the rest it your lives your children have a €2m+ asset with no CAT or CGT to pay

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Really??

The exemption is for accommodation provided for free to a widowed parent .

The children in this example are minors, they cannot make that decision to provide free accomodation to their parents.

Your proposal also requires the life interest to be in place before the gift in order to reduce the inheritance value. Essentially the parents have provided for their own housing needs despite transfer of the asset.

I think it is very ambitious to think this would be CGT free in the future for the children

_OkGo_ said:

The children in this example are minors, they cannot make that decision to provide free accomodation to their parents.

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Agreed.

You can’t “take” a life interest in a property - it has to be granted by the property owner. And minor children obviously don’t have the legal capability to do anything of this nature.