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What to do with a lump sum

The term lump sum generally means a large sum of money. Whether you have inherited, won the lottery, or simply amassed a lump sum after years of saving, it can be tricky to decide where to invest your money.

Coming into a lump sum of money can be a great opportunity to improve your financial security and used wisely it could have a long lasting and positive impact on your wealth, especially if you are looking at a considerable sum.


Know the tax implications

Depending on the form of your lump sum, there are different tax implications. Some examples include:

  • Bonus – income tax will be payable at your marginal rate. There could be tax benefits though if your employer offers salary sacrifice in exchange for a contribution to your pension
  • An inheritance – tax treatment can be complicated although many estates are below the level at which they IHT, with the basic nil rate band currently going up to £325,000
  • Premium bond or lottery win – these are usually completely tax free
  • Compensation payments – there are different tax treatments as these can come in varying guises from insurance claim pay-outs to compensation for personal injury

It’s always recommended that you seed advice from a financial advisor or HMRC to make sure you are sticking to the tax rules with regard any lump sum you might have come in to.


Investing your lump sum

After you know how much tax you have to pay on your lump sum, you can look to the more rewarding business of how you can best make your money work for you.

There are many considerations when deciding how best to invest your lump sum and considerations will include:

  • How much you have to invest
  • What you want to use the money for – and when will you need it
  • What is your attitude toward taking risk to achieve potentially higher returns
  • Do you have outstanding debts which need to be cleared


Understand your priorities

It can be hard to know where to start when visualising your future, so working with a professional financial planner can be particularly helpful in this.

A few questions you will need to ask yourself will include:

  • When am I likely to retire? – The answer to this will influence your spending and investment plans and how you structure your broader finances
  • What lifestyle do I want? – You might want to use some of your lump sum to bring you enjoyment as well as security
  • How do I want to invest? – Perhaps you want your lump sum to be invested in a way that generates a regular income, or your main priority might be growth

Once you’ve set your priorities, investing your lump sum wisely will help it make the biggest potential contribution to meeting your long-term needs and goals.


Need our help?

Whether you have obtained your lump sum through inheritance, redundancy, bonus payment or surprise good fortune – we can help you make the most of it to create long-term security for you and your loved ones.

We can help you understand your priorities and invest your lump sum wisely. We will help you understand what you want to get out of your lump sum and navigate the decisions you’ll need to make, including finding suitable investment options, based on your circumstances, goals, tax status and appetite for risk.

Get in touch with our expert team today for advice and support.

lump sum

The information was correct at time of publishing but may now be out of date.

Wealth Management
Posted by Cowgills
17th November, 2021
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