These are the things I would advise Lottery winners to do.
- Take a holiday - after such a major change in circumstances, it is important to take time out to get used to your newfound wealth and consider how you want to live the rest of your life.
- Pay off any debts you have, but first check that there are no early repayment penalties.
- Make a will or update the one you have. Consider providing for the inheritance tax due on your estate after death.
- Don’t rush into any major purchases or gifts to others, until you have taken time to consider how you will fund your future lifestyle. This may sound counterintuitive. You should never have to worry again but previous winners have experienced mixed fortunes with sudden wealth, some going from rags to riches and back to rags again, due to unwise investments, being over generous or exploited by others.
- Ring fence some funds and invest them for a steady income enough to maintain your desired lifestyle, including expected inflation, over the long term.
- If you want to make gifts to others consider how. Sometimes this can work out badly, if it means the recipient sees you as a continuous source of funds. Especially if children or grandchildren are young. Making gifts which lead to family members becoming wholly dependent on you and limiting their own life chances, may not be kind.
- You may wish to add conditions to any gifts you make. For example, making gifts to minors subject to restrictions on when they can access the funds, or what they can do with them. This can be achieved by using trusts but may not be as tax efficient as an outright gift.
- If your offspring are not in established partnerships, you may suggest a pre-nuptial agreement, if they are expected to inherit substantial wealth. This can protect them from gold diggers but can also be a barrier to forming relationships. Equally too many stipulations can harm your relationships and make the gift not feel like a gift but an obligation.
- Make smaller regular gifts, rather than large lumps of cash. Regular gifts made from income, surplus to your needs are exempt from inheritance tax. They can also be stopped or varied should your circumstances, or the recipient’s, change.
- A lump sum gift remains in your estate for 7 years for inheritance tax purposes, but more importantly it can be lost altogether if the recipient divorces or is made bankrupt or has an addiction.
- When investing take advantage of investments which offer tax breaks, such as Individual Savings Accounts and Pensions. Consider making pension contributions for younger family members, everyone from age 0 to 75 can receive tax breaks on pension savings but cannot get at the funds until in their late 50s. Pension funds up to the Lifetime Allowance (£1,055,000, inflation- linked) can also be left on death free of inheritance tax and the lifetime allowance tax charge. They can be passed on down several generations in this way in a largely tax-exempt fund.
- Invest with a purpose. You need to secure your own needs for the long term but should have enough to be able to consider doing some good with the surplus. You can ensure that your investments are doing good in the world while making money, or at least not doing harm by Investing in funds screened for their environmental, social and ethical credentials.
- Are there causes you believe in? Especially as you need never work again, you could spend some of your spare time getting involved in the work of major charities or even establishing your own charity. This too carries tax benefits. If up to 10% of your estate is gifted to charity the rate of tax applying to the balance is 36% instead of 40%. Donations to charities under the gift aid scheme also give income tax relief.
Money is only a means to an end, so use it to achieve your ends. While it may be funny in a rich man’s world, money won’t buy you love, so celebrate your good luck but keep it in perspective.
Director of Public Policy
Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. All information is based on our current understanding of taxation legislation and regulations. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts
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