Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
How to Wisely Invest £1million if You Win the Lottery!
Moneymagpie Team
30th Oct 2020
We’ve all dreamed about winning the lottery… but what would you do if you actually won the jackpot? Aside from buying property, helping out friends and family, and maybe taking a fun trip abroad – how would you invest £1million for a steady financial future?
It’d be incredibly tempting to spend every penny on luxury and fine things – but a £1million windfall could give you financial security for life. It’s all about knowing how and where to invest your capital. Try these ideas on for size!
- Winning £1million Means No Taxes
- Invest in Property
- Consider Stocks and Shares
- Pay Into Your Pension
- Think About Inheritance Implications
- Invest in Physical Assets
- More Investing Tips
Winning £1million Means No Taxes
Bit of an attention-grabbing headline that, but it’s true! Unlike money you earn from your job, or profits from things like selling property, there’s no tax paid on winnings in the UK. That means you get the full million pounds into your bank account!
There are a few caveats here, though:
- You may pay tax on your interest payments if you earn over £1,000 a year from interest
- You could be taxed on profits of some things you buy then sell (such as Capital Gains Tax on properties)
- Giving your friends or family money means they could face Inheritance Tax bills if you die within 7 years of the gift
If you’ve suddenly come into a lot of money – whether that’s £100,000 or £1million or even more – always seek professional, independent financial advice before you do ANYTHING. Your adviser will help you make the most of your winnings without getting caught in accidental tax traps. Find a trusted independent financial advisor using VouchedFor.
But, what sort of things would an advisor talk to you about? Here’s how a financial planner might suggest you invest £1million.
Invest in Property
The first thing most people do when they receive a bunch of cash is to look at their housing situation. It’s a good opportunity to secure a roof over your head without needing to faff around with mortgages!
You might want to invest £1million, but try not to spend ALL of it on a house! Look at your current lifestyle, the type of lifestyle you want in the future, and whether you’re likely to move again or need to find your ‘forever home’ that’ll last you well into your older years. Think, too, about the location – buying a remote mansion sounds great on paper, but in reality it comes with much higher living costs as you’ll need to jump in the car every time you want some milk – and things like that quickly adds up!
The running costs of a property are important to consider, too. A large house comes with much higher bills – so you need to factor that in when you’re spending your winnings. Sure, you could get a big house and sell it when the money’s run out – but there’s no guarantee you’ll get the same price for it if you need to sell up fast in the future.
Investing in property is, however, a wise move. It secures your future and ensures you have a capital asset to leave your loved ones if you’re worried about making sure they receive an inheritance. Look at the area you’re buying in, too – you could snap up a property bargain in an up-and-coming area and sell it for greater profit later on.
Buy-to-let investments
In fact, you might want to split your winnings across different property investments. Many with such a windfall choose to purchase a modest family home to live in, and then secure an income from buy-to-let properties. A rental income from one, two, or several properties is a great way to make your winnings work even harder for you. You’ll have the capital asset of the property as well as an ongoing income – often with much better returns than savings accounts!
Consider Stocks and Shares
This is, of course, a riskier thing to take on than just keeping hold of your winnings as cash. However, with interest rates so low right now – and the threat of high-balance holders paying banks to save their money should negative rates hit – you’re better off investing some.
Make the most of stocks and shares ISAs first of all. You have an annual allowance each year (currently £20,000) that you can put into your ISAs – and the returns you gain on anything in that tax wrapper are tax-free. It makes putting your money into equities investments worthwhile, and if you pay in your allotted £20,000 at the start of each financial year, your money will have plenty of time to make the most of compound interest to grow and grow!
Of course, if you’re wanting to invest £1million (or a share of it), a £20,000 limit won’t get you very far. You can use other investing platforms to make your own stocks and shares trades – or, you can hire a broker to do it for you. However, brokers skim a fee and aren’t always any better than investing it yourself. That’s especially true when you consider robo-advisors and robo-investors that track the FTSE and international stock markets in the same kind of way – but with much lower platform fees.
Read up about investing in stocks and shares before you take the plunge. You could accidentally lock up your investments if, for example, you buy shares privately in a company that’s not listed on the stock market yet.
Pay Into Your Pension
Yes, yes, we know: pensions are boring. However, you can pay in up to £40,000 a year before losing any tax relief. That means you can claim extra money on £40,000 a year, for free, just by putting it into your pension.
Lots of people who receive a windfall choose to stop working. This means your employer won’t be paying into your pension anymore – and nor will you. Invest as much as you can into your pension, as soon as you can. The longer you can leave these tax-efficient retirement pots with a bunch of cash in them, the more time you have to generate tasty returns. That, in turn, means a much more comfortable retirement!
It’s a good time to look at your current pension providers, too. Do an audit of your current workplace pension, old work pensions, and any private pension providers you’ve got. It could be a suitable time to consolidate your pensions to save on management and investment fees – which eat into your retirement pot every year!
Think About Inheritance Implications
Many of us think about helping out family and friends if we were to win a large sum of money. That’s a very noble plan – just make sure you avoid any hidden tax traps for you OR your loved ones.
Inheritance tax rules means that, if you gift over a certain amount of money, your loved one could end up paying up to 40% of it back to the Government if you die within 7 years of the gift. There are, however, ways to manage this.
First, get your head around inheritance tax rules. You can give certain family members a tax-free amount each year (how much depends on their relation to you). You can also gift close family members up to £5,000 for major life events, such as getting married, without incurring potential inheritance rules.
Other ways to share your new wealth
If you want to help out more, such as helping children with a deposit for their first home, there are some options. For example, you can arrange an interest-free loan between you. Should you pass away within seven years, this loan is taken into account on the estate – so your child receives their portion of your estate minus the loan amount. You could also consider putting your child on the deeds of a property – but there are other tax implications here. There are also benefits if a certain amount of your estate is left to charitable causes. Always speak to an independent advisor before acting!
For some things, you could help your loved ones by paying directly. For example, if you want to fund your children or grandchildren’s university costs, paying their accommodation and tuition fees direct is another way to help.
You can also change who benefits from your will – and how – with things like discretionary trusts or education trusts. You can also benefit your children by paying into a pension for them each year – you can set up pensions for babies as soon as they’re born, and it’s a great way to leave a long-term legacy for them.
With so much money now in your hands, always speak to an estate planner before you do anything. And make sure you have a will written, too!
Invest in Physical Assets
Consider investing in physical things as well as property and stocks. This is because it’s important to diversify your portfolio. Savvy investing, such as timely purchasing of gold coins or bullion, can net you great returns.
More than that, physical assets like antiques, art, designer fashion, vintage toys, and even whiskey and wine, hold an intrinsic value. That means they will always be worth something – unlike stocks and shares, which can entirely crash and lose you every penny you’ve invested!
Investing in physical assets not only diversifies your portfolio, either. It brings you joy! If you collect something that’s special to you, whether that’s pristine vintage vinyl records or old Polly Pockets, it’s an enjoyable way to invest your cash.
More Investing Tips
Whether you invest £1million, £100,000 – or even £100, there are lots of different ways to do it. Make sure you’re fully up-to-speed on ways to invest and make your money work hard for you by reading these articles next!
- 5 Golden Rules for Beginner Investors
- Savings vs Investing: What’s the Difference?
- How to Invest £250,000
- 7 Investment Tips for Stock Market Beginners
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.
I would advise not making gifts to family or friends. Money has torn more families apart than anything else. One big problem is that they may come to expect these ‘gifts’ every so often, or show up at your door looking for more handouts attempting to guilt trip you into giving more. I have personal experience with this. No, I haven’t won the lottery, but have a well-paying job and make significantly more money than anyone of my siblings. So apparently they think this entitles them to ask for handouts repeatedly as “You can afford it!”
I don’t mind helping out now and then, but I have my own wife and kids to look after. They come first. But a lot of people don’t seem to understand this or care. Why do you think so many lottery winners go broke after 5-10 years? And they (initially after the win) had a whole lot more money than I.
I doubt I’d be at all sensible with this sort of money!