Investing an inherited lump sum to enhance income and start saving for retirement

Background

Our client, single and in his early 30s, recently inherited close to £2 million following the death of his grandmother, also a client of Cazenove Capital. He works as an architect earning £55,000 per year. The client owns a flat, mortgage-free, which is sufficient for his current purposes. He has cash savings of £100,000, ISA investments of £30,000 and minimal pension assets. He came to us for advice on investing in the stock and bond markets. He is passionate about the environment and has indicated that he wished to avoid investments in extractive industries.

Key need

The client is looking for advice on how to structure his wealth following his inheritance. He plans on spending up to £100,000 on a car and the refurbishment of his flat but is happy to invest the remainder. He has indicated he would like to use his investments to supplement his income. However, he wants to preserve the flexibility to make lifestyle changes in the future. He is considering starting his own architectural practice at some point in the next few years and may start a family.   

Our solution

We used cash flow modelling to help the client better understand his requirements in the years ahead. We advised on and implemented a comprehensive plan.

To meet the income requirement, we advised the client to invest £800,000 of the lump sum into an offshore investment bond (OIB), managed by Cazenove Capital. This will allow him to create a tax-efficient source of future income, while deferring taxation on capital growth and investment income.

We set up a self invested personal pension (SIPP) for the client and funded it with the maximum, tax-efficient contribution in that tax year. We also established an ISA account and have agreed to maximise his contributions to these tax-efficient vehicles in future years on a regular basis.

The OIB, SIPP and ISAs have been invested using a high-risk mandate given that the client is comfortable investing these accounts with a long-term time horizon.  

The remaining cash will be invested through a taxable investment account following a slightly lower-risk strategy, as the client may want to access this money in the medium term.

All investments have been made using Cazenove Capital’s flagship Sustainability Diversified strategy which invests in a broad range of impact and sustainable funds. Impact funds invest in companies that can demonstrate their contribution to improving outcomes in a specific field (e.g. environmental or social causes). Sustainable funds invest in companies that take into account the interests of all stakeholders, including employees, the environment and the broader community.

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This strategy was based on our understanding of prevailing tax legislation at the time and should be reviewed on a regular basis in light of changes in legislation and personal circumstances. You should obtain professional advice on taxation where appropriate before proceeding with any investment.