How to make the most of an inheritance

Many of us will receive an inheritance in the course of our lives. It may be substantial – many of us expect to inherit a share in a family home – or disappointingly small. ONS research has found that the average inheritance is £11,000. But whether the amount we are handed is in the thousands or hundreds of thousands, it will need careful management. If used judiciously, it can change lives for the better. If not managed well, it simply will not last long, or make the kind of difference that you might like.

At Continuum we are looking at how best to use an inheritance.

You may have to re-think your financial plans

You probably have some idea of your financial future. A large cash lump sum could let you change your plans for the better. A large inheritance can open the door to some exciting new possibilities. With an expert to advise you, you will be able to see just what might be possible. 

But there will probably be some key steps to take.

Pay off high-interest debts

It is tempting to make a big purchase with your inheritance, but before you buy the classic car or the speedboat the first step is to pay off debts. Your priorities should be based on the interest rate you are paying. So, credit cards are usually the most expensive with a much higher rate of interest than other borrowing and should be paid off first, before moving on to the low-interest debts such as your mortgage.

Paying off debts avoids heavy monthly interest payments, plugging a huge drain on your wealth – leaving you free to start building on your inheritance.

Create your emergency fund

An emergency or rainy day fund might be the next priority. Market fluctuations, recessions, mistakes the unexpected events such as a pandemic, could upset your financial plans and an emergency fund makes for a reliable safety net. Keep this contingency money separate from everyday transactions. At Continuum we can help you find a suitable fund to ensure it will earn interest while staying ready to use if required. 

Invest in your retirement

Retirement planning should be a priority with any size of inheritance, because even a relatively modest lump sum can make a big difference to your retirement. The tax concessions relating to pension contributions are so generous, a pension could well be the most rewarding investment you ever make.

The maximum you can put into your personal pension fund in any single tax year is £40,000 gross or as much as you earn, whichever is the smaller, with the benefit of tax relief on your contributions of 20% for a basic rate taxpayer and an additional 20% if you are a higher rate taxpayer through your self-assessment return to HMRC.

That is of course before they are invested for you with the potential for growth. 

At Continuum we can help you set up the private pension that is best for you.

Build your wealth

Of course, you don’t have to confine yourself to building a pension pot. If your inheritance is large enough you should consider investing. If you are new to the stock market and want to learn more about using some of your inheritance to invest in stocks, there are many ways to go about it. The best way is to speak to one of our expert Advisers. 

Get some expert support

With new priorities and newfound wealth to help you reach them, a new strategy to manage all of your finances may be necessary. Whatever the size of your inheritance, it is worth getting expert help with developing this strategy to avoid some of the pitfalls (such as tax liabilities) that are waiting for the unwary.

Getting the support of an independent financial adviser may also be the best way to manage your new found wealth and make investments and other arrangements that align with your goals.

Managing your money on your own may look cost-effective, but getting the support of an independent financial adviser with the tools and processes and expertise to put them to work could ensure your inheritance has the maximum impact.

To find the independent financial support you need, whether or not you have come into an inheritance, simply call us at Continuum. 

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested.

Taxation and trust advice is not regulated by the Financial Conduct Authority.

Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage

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