Money Makeover: ‘I’ve just won the US Open and have millions to invest. Where do I start?’

Not many teenagers suddenly have millions of pounds at their disposal – and those who do tend to have made it through wild bets on cryptocurrencies or “non-fungible tokens” rather than by winning international sports tournaments.

But Emma Raducanu is no normal teenager. Having just been handed a £1.8m cheque for winning the US Open, and with sponsorship deals with Nike and (hopefully) many more tournament wins to come, the normal approach to investing – sticking as much as possible into an Isa each year and making the most of an employer’s pension contributions – will not quite cut it.

“Despite getting an A in my economics A-level this summer, I’m not an investment and tax expert yet and need some help. I want to win all the grand slams, and they pay around £2m each in prize money,” Ms Raducancu, who has recently arrived back in Britain, may say.

Now that the young sports star is well and truly in the global limelight, she is about to be inundated with offers of business deals, tax advice and investment tips. But not everyone will have her best interests at heart. Here is how she should manage her finances.

Sam Benstead, investment reporter at Telegraph Money, said:

When my friends ask me for investment tips, they normally ask what an Isa is (it’s a tax-free account you can add £20,000 to each year), whether they should buy cryptocurrency (only invest what you can afford to lose) and if Tesla shares are worth buying (not at the current price).

Ms Raducanu’s case is far more complicated and the stakes far higher. First, she needs to make the most of all the tax shelters that the Government gives us. That means using an Isa, yes, but she could also use a pension, which has an annual allowance of £40,000 including tax relief. However, higher earners are penalised and the allowance reduces by £1 for every £2 of income above £240,000, down to a minimum of £4,000. Ms Raducanu would be caught by this.

Outside these tax-efficient shelters she has to pay capital gains tax on any profits she makes on her investments, charged at 20pc for higher-rate taxpayers. This is after she has already paid income tax, charged at 45pc on anything over £150,000 a year.

Being an “additional-rate” taxpayer, Ms Raducanu will lose just under half her prize money to the taxman. Her take-home pay will be around £1m after she has paid £794,960 in income tax.

At 18, it might appear that she has a whole working life ahead of her, but this may not turn out to be true. Hopefully she will have a long career long into her 30s, but in reality her longevity as a professional tennis player is very unpredictable. Planning now for all circumstances in vital. She should take less risk with her investments than a typical teenager, who would be able to leave cash invested until their 60s. She may need to call on her winnings at any point.

She should keep a cash reserve to cover 6 months worth of expenses in case at any point she is unable to play and earn an income. If she ever dips into this, she should replenish the pot as soon as she can.

With the rest, Ms Raducanu should buy stocks instead of bonds, but own them via a global tracker fund rather than entrust her money to an active stockpicker. Such trackers own most of the stocks on the planet, the best and the worst, for a low fee. Human money managers try to beat the market but most won’t succeed after their fees are taken into account. They also own fewer stocks, so returns can be more volatile.

Ms Raducanu can keep it simple with the iShares MSCI All Countries World Index ETF. It owns everything, from Indian and Chinese stocks to American and British ones. Since its launch a decade ago it has made 11pc a year.

If she is feeling more adventurous, she could put some money into active funds as well. Two that have consistently beaten their peers include Fundsmith Equity, which buys big companies with established products, such as L’Oreal and Microsoft, and Scottish Mortgage investment trust, which seeks out the successful businesses of tomorrow, in areas such as renewable energy and biotechnology.

Finally, she needs to decide which broker to invest with, an often overlooked decision that can cost investors thousands of pounds a year if they get it wrong. With more than £1m to invest, she should use Interactive Investor, a stockbroker that charges a flat monthly fee of £10. Other fund shops, such as Hargreaves Lansdown, levy a percentage fee on assets. At 0.45pc, this would mean paying £4,500 a year, far more than the £120 a year at Interactive Investor.

Steven Walker, a chartered financial planner at Suttons, a financial adviser, said:

With the world at her feet, Ms Raducanu has to think carefully about what she does with her money. I’ve worked with footballers, and the road to financial freedom for young athletes is more treacherous than they imagine.

First she needs to set aside enough money to pay income tax on her prize money. Then she should use all the standard tax perks the government offers to pay as little in capital gains tax as possible. This means making the most of her Isa and Sipp allowance, but also considering buying venture capital trusts, which offer 30pc tax relief and do not charge tax on dividends or capital gains. A good provider is Octopus Investments, which has backed the likes of Zoopla and Cazoo.

Next, she should think about setting up a company to manage her taxes more efficiently. Via a separate vehicle she can combine her sporting and non-sporting income and bring on a professional accountant to help reduce her tax bill, such as by paying herself dividends.

Housing should also be a priority. If Ms Raducanu wants to buy a property, she should try and pay as much in cash as possible. Sports stars tend to lever their high incomes to take out massive mortgages, but then they lose their spot in a team or get injured and saddled with a lot of debt if they have to end their careers early.

She will no doubt be offer so-called “tax hacks” to reduce how much she pays on her earnings. But she must avoid these at all costs.

The typical schemes are property development abroad, funding films or setting up offshore companies. They might work, they might not, but she is putting her reputation on the line by taking on HM Revenue & Customs and her image is one of her most important assets.