How to invest a lump sum

Whether from a pension, inheritance or sale of a business, if you've inherited a lump sum of money, there are several investment opportunities you could consider. Depending on your circumstances, future plans and how much of a risk you are willing to take, here are some options available.

What are your goals for the money?

It's a good idea to think about what you want a lump sum to achieve.

When considering lump sum investments, consider your options carefully. Thinking through your investment goals can help you choose the option that best suits your needs.

Options to consider include:

• your circumstances – such as repaying debts or saving to pay for children at university
• your risk profile and your appetite for risk
• your personal interests, such as investing in sustainable funds
• whether you want to generate a regular income or invest to grow your capital

When assessing your money goals, think about the timeframe of when you would hope to see a return on your money which will help you decide which investment option is best for you. Buying a Buy-To-Let property, for example, may require you keep your money invested for many years, whereas investing in property development can see investment terms be as little as one year.

Investment options

With any investment, it's important to understand that your capital is at risk and that there is no guarantee of earning a return on your investment (ROI). Some options may carry more risk than others, but these types of investments often offer higher potential returns.

Be mindful and research before making any decisions so you can be confident in the option you choose and its corresponding level of risk. It's worth considering your risk profile, and it can be a good idea to speak to an independent financial advisor who can help you determine your appetite for risk.

There are several options that people traditionally use when looking to invest a lump sum.

Savings account

A savings account investment can be relatively low-risk, especially if it's a limited-withdrawal account. This type of savings account limits how often you withdraw from it, but your capital usually isn't at risk. However, this low-risk approach means that the return on your investment – typically a low-interest rate – can be significantly below inflation, meaning your money is worth less over time.

Look for a savings account with a reasonable interest rate which could see your capital grow, and shop around regularly to get a good interest rate. It's a long-term investment as it'll take time for a significant profit to build from the interest, but check the interest rate compared to inflation to ensure you don't lose out in the long term.

ISAs

You could invest your lump sum into an Individual Savings Account (ISAs). These savings accounts allow you to earn money with tax-free interest.

Depending on your needs, you could invest in several ISAs such as a lifetime ISA, stocks and shares ISAs or cash ISAs. If you use a lifetime ISA (used for first homes or retirement), you can put in up to £4,000 each year, with the government adding a 25% bonus (max £1,000 per year) on top of your savings. This £4,000 lifetime ISA limit counts towards your annual ISA limit of £20,000 (for the 2022/2023 year).

You can split your lump sum across the different ISAs, as long as it doesn't exceed the £20,000 annual limit.

Stocks and Shares ISAs are a long-term investment and may be suitable if you're not looking for an immediate return. Stocks and shares may have a higher risk as your capital is at risk and you may not get back your original investment.

You also have the option of investing in another form of ISA, the Innovative Finance ISA (IFISA) which is an investment account that allows you to use your tax free ISA allowance to invest in peer-to-peer lending which means you can earn tax-free interest on the funds they lend. An IFISA can be used to invest in selected developments with Acorn Property Invest.

Pensions

You can add up to £40,000 or the equivalent of 100% of your tax year earnings into a pension pot and benefit from tax relief. If you take out a lump sum at retirement, you can take out 25% of your pension tax-free. Tax is paid on the remaining income from your pension investment at the same rate of tax as if you were an employee.

For basic rate taxpayers, the government contributes 25% of their pension savings into the pension pot in the form of a tax refund – so, for every £100 you put in, the government will provide a top up in the form of a tax refund of £25. A pension is relatively risk-free, however, anything over £40,000 invested each year will be taxed.

Investing in property

One way to use your lump sum is to invest in property.

Investing in property can provide many benefits, including stability, a passive income and capital growth.

Some ways you can invest in property include:

• Buy-To-Let – Buying a property and letting it out to tenants in one option. Rental properties are currently in high demand, 6% up from last year. With rental properties, you can target specific tenants, such as students or families, and reap the benefits of a thriving rental market. This investment may be more long-term depending on how much you're letting out the property for and if you are letting out separate rooms (e.g. shared housing). You'll also be liable for Capital Gains Tax should you sell your Buy-To-Let, which is currently 18% for lower-rate taxpayers, and 28% for higher-rate taxpayers.
• Real estate investment trusts (REITs) – REITs are companies that invest in property. For a long-term investment, you can invest your lump sum into buying shares in a company that can trade on the stock market. You can grow your capital if the share price increases and you sell them, but it's not guaranteed.
• Property development investments – An alternate route into property investment that removes that hassle of buying your own property is to invest in funding new build homes through organisations such as Acorn Property Invest. This allows you to easily and simply invest in property both for income and for capital growth. Property development is funded by bank debt, mezzanine finance and equity. The mezzanine funding sits behind the senior debt and before the developer’s equity. Money is invested and repaid once the development is completed. Senior debt is paid first, mezzanine second and then the developer’s profit and profits distributed. It's a potentially higher-risk investment than a bank loan – but equally offers potentially higher returns.

Do your research

Before investing your lump sum, it's important to do your research into the potential investment platform.

You may want to take independent financial advice and ask all the questions you need to know before making a decision. It's also advisable to read up on the investment you want to make or the company you might invest in to weigh up the risks and the potential return on investment.

No investment is guaranteed, so consider the risk and how quickly you want to see results when choosing the right investment opportunity for you.

Your capital is at risk if you invest

Investment opportunities available via Acorn Property Invest are exclusively targeted at exempt investors who are experienced, knowledgeable and sophisticated enough to sufficiently understand the risks involved, and who are able to make their own decisions about the suitability of those investment opportunities.

All investors should seek an independent professional investment and tax advice before deciding to invest. Any historic performance of investment opportunities is NOT a guide or guarantee for future performance and any projections of future performance are not guaranteed.

All investment opportunities available via Acorn Property Invest are NOT regulated by the Financial Conduct Authority (FCA) and you will NOT have access to Financial Services Compensation Scheme (FSCS) and may not have access to the Financial Ombudsman Service (FOS).