It’s important for Ms Potts to consider her attitude to risk and her current health which should dictate where and how her funds are invested. 

The £170,000 could be put into a model portfolio service (MPS), probably at a low to medium risk level, with a well-diversified blend of equities, fixed income and alternative assets. 

An MPS balanced portfolio aims to provide growth or income of around 4pc per year after costs over the medium to long term, which could be used to offset the effects of inflation or help her enjoy what is important to her, such as investing in her garden or a new top of the range bike. 

Ms Potts’s ethical preferences should also be taken into account. Half of her £5,000 investment bond is in a sustainable and responsible equity fund, so she might want to consider this if she does invest her £170,000.

Her pension with St James’s Place seems to be at quite a high risk level which needs attention. There is very high exposure to equities, mainly concentrated in North America. This has probably done well, given the successful performance of the Magnificent 7, but this pension should be better diversified.

Even if Ms Potts has not taken the tax-free element of her remaining St James’s Place pension, this may still be a suitable approach if inheritance tax planning is important and she should take a look at this again following the Budget on Oct 30. 

Despite there being uncertainty around what might be introduced at the Budget later this month, it’s important Ms Potts realises she is in a good position and does not need to rush into any decisions. 

Felix Milton, chartered financial planner at Philip J Milton & Company

Ms Potts is in the fortunate position of not needing to rely on any of her investments to meet her living needs. As she is 72 years old, she has the time frame to be able to consider investing for the longer term.

Ms Potts should immediately utilise her remaining Isa allowance and could top up her existing stocks and shares Isa with £17,600, to ensure her full £20,000 allowance is utilised this tax year. 

She should also earmark another £20,000 to utilise her Isa allowance in the new tax year (assuming the Isa allowance isn’t reduced in the Budget).

It is likely that Ms Potts has an inheritance tax issue, in that the total value of her estate is above £500,000. 

Anything over £500,000 will be taxed at 40pc. A simple solution to ensure that her son will not have to pay as much inheritance tax would be to gift him a larger sum now, perhaps the remaining £130,000 (after allowing for her Isa funding).

As she is likely to survive for many more than seven years, this amount would fall outside of her estate for inheritance tax purposes.

Alternatively, she could consider investing some of her funds into the alternative investment market (Aim) in which most companies qualify for business property relief once held for two years, though by nature these companies are smaller and riskier. This has the added advantage of ensuring that Ms Potts retains access to the funds.

Ms Potts should also look to top up her pension with £2,880 each year, which she can do until she is 75 years old. HM Revenue and Customs will add £720 in tax relief to the contribution, providing an instant 25pc boost to her contribution. 

Pensions also have the added benefit of being outside of the estate for inheritance tax purposes so, while nominal, these contributions could help mitigate the liability in the future.



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