Omnium Wealth Management

How would you spend your windfall?

It must be a rare person indeed who has never dreamt of coming into a large sum of money, either through winning the lottery or, perhaps, an inheritance.

The question is what would you do with the cash – immediately go on a spending spree or pause to think how you could turn your good fortune into financial security for life?

The consequences of taking the wrong path are all-too clear; Reader’s Digest estimates that 70% of lottery winners squander their windfall within five years.

However, even if you opt to take the sensible route, there are some important factors to consider.

Tax

Tax on winnings

Gambling winnings are not treated as income by HMRC, but how you deploy your fortune might well attract the attention of the Revenue.

For instance, if, out of your lottery winnings, you were to buy a painting for £50,000 and sell it after six years for £90,000, Capital Gains Tax (CGT) would apply to that part of your gain exceeding your annual £11,700 exemption; £40,000 profit, less the exemption would leave you with a taxable gain of £28,300. Basic Rate tax payers would be liable for £2,830 (at 10%) while higher and additional rate tax payers could face a CGT bill of £5,660 (at 20%).

Tax on inheritance

If you are left all or part of an estate, Inheritance Tax (IHT) will be applied at 40% on any sum above the 2018-19 nil-rate threshold of £325,000; an estate valued at less than this figure will pay no IHT. There is also a separate nil-rate threshold of £125,000 for homes passed on to direct descendants.

Tax on sales

If your windfall comes from a sale of shares, assets or businesses that you own, you will probably be liable for CGT. The annual CGT allowance (£11,700 in 2018-19) will be applied, but profits in excess of that figure will be charged at 10% for standard rate taxpayers and 20% for higher and additional rate payers.

What could you do with your windfall?

Savings

The current annual ISA allowance enables you to save up to £20,000 per annum without paying tax so this option could be attractive if you wanted to boost your retirement income.

Investing in shares

Stock market investments could be a worthwhile option, although it is important to understand your own appetite for risk and financial capacity for loss.

Gifts

The rules allow you to give away cash or assets worth up to £3,000 a year without being subject to IHT – any amount above this would create an IHT liability if you die within 7 years.

Debts

Using your windfall to clear debts, including any mortgages, is always a sensible option because it will help make you financially secure over the longer term.

 

Get in touch 

For more information on any of the idea above, or if you would like advice on managing your finances for a secure future, please call us on: 01483 205890

Interested in finding out more? Read our guides:

          Tax Planning Guide 2018-19          

Back to News Index

« Read Previous