I am thinking of downsizing my family home as I am widowed and living alone in a four-bed detached house worth £450,000.
If I sell my home and downsize to a property around £250,000, what are my options for the rest of this cash, plus an extra £170,000 in cash savings?
If I buy a second property for rental, what are the tax implications for this?
I would like to downsize so I can help with future grandchildren and work less in a large garden but I am put off by not knowing how to invest my money.
Plus would the new inheritance tax rules coming in mean I would actually do better to stay in my current large home?
CB, via email
You are correct that new inheritance tax rules being phased in from next year mean the tax-free amount individuals and couples can leave to direct descendants is larger if it includes a family home.
Currently each individual can leave £325,000 to anyone without paying any inheritance tax at all. This would mean that your estate, which is worth £620,000, could take a significant tax hit.
However, you will have been able to inherit your late husband's assets without incurring IHT, with any unused "nil-rate" band of his transferred over to you.
This means that you can actually leave up to £650,000 - which covers the entire value of your estate, whether you downsize or not.
If you were to downsize, you would have to pay some stamp duty on the residential property, and also factor in the costs associated with moving - but you might consider it is worth it to live in a more manageable property and be able to help with your grandchildren.
If you downsize and then give away money to family, be aware that your estate could still be taxed on it if you die within seven years.
You could consider putting some of the money into trust to help your family in the future. This would also reduce your inheritance tax liability.
Taking some advice from a financial planner might help you feel more comfortable with the idea of investing, and they should be able to tell you the most suitable and tax-efficient way to do this.
Where a buy-to-let is concerned, be aware that buying a second property could open you up to extra stamp duty and capital gains tax, said Rhoddy McGrigor, from the private client team at Barlow Robbins solicitors.
"Since April 1 all buy-to-let purchases pay an extra stamp duty charge on a sliding scale.
"If the costs involved in your sale and purchase leave you with capital to buy a property worth £340,000, stamp duty on that purchase would be £17,200.
"You would need to work out if you will make up the tax and expenses over the lifetime of your investment.
"Provided you keep the extra property until your death, there would be no capital gains tax.
"However if you need to sell the second property for any reason, say to cover care costs, you risk paying it on any gain in value at the standard rates. Sadly the new lower rates for capital gains tax, announced in the Budget, do not apply to investment property," he said.
Bear in mind, too, that managing a rental property can be work-intensive, so consider whether you would want to take this on - and if not, factor in the cost of asking a letting agent to do this for you.
New buy-to-let rules also reduce the amount of tax relief higher-rate taxpayers can claim on their rental income from next year, so consider very carefully whether this would affect you, too.
You should also think about keeping money aside for future large costs, such as care, which can be very expensive.
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