Key considerations when you inherit money

inherit moneyMany of us will receive an inheritance in the course of our lives. Our first thoughts may be about the person we have lost, but we still need to think about how we will use what they have left us.

A time of bereavement may not be the best to be making financial decisions – so we have looked at some of the questions you may find yourself asking.

How does the process work?

Inheritances are usually handled by executors, individuals appointed and trusted by the deceased.

If there is a valid will, the executors will first ensure any outstanding debts are paid and the remaining assets distributed in accordance with the will.  If there is no will the assets of the estate will be distributed in line with the laws of intestacy.

It may take several months for you to receive your share of the estate, especially if there is property to be sold.

What about tax?

Inheritance Tax (IHT) may be payable on estates worth more than £325,000, at a rate of 40%. Naturally, that will reduce the amount available for the beneficiaries. The executors will arrange payment to HMRC before rest of the estate is distributed and in some circumstances, may be able to act to reduce the tax payable.

You should not be faced with a tax bill on your inheritance, although you may be liable for tax on any interest that arises from it.

What you should you do with the money?

It’s important not to rush any decisions, and it may be best at first to put the cash in banks or building society deposit accounts. Only use banks and building societies protected by the Financial Services Compensation Scheme (FSCS) and split the money so no more than £85,000 is placed in one person’s name with any single institution.

Your money will be safe, but remember that while inflation remains above the interest rate you receive, the ‘real value’ of the money will fall.  You should probably consider how you will use the money for the future.

What should you do for the longer term?

Before you make decisions, start to think about your life, and your financial position, and perhaps that of your family. What are your short, medium and long-term goals? Only once you truly understand what it is you want from life, can you start to think about how the money could be used.

If you have a mortgage you my want to pay it off.  However, in these days of extremely low interest rates there might be more financially beneficial options, such as investments.

Weighing up the advantages and disadvantages of each option is crucial, which is where a Financial Planner can provide essential and impartial advice.

You might want to consider your own will, or even about providing financial assistance to your children or grandchildren following your inheritance. The concept of ‘living inheritances’ is becoming more popular. Not only does it allow you to see the benefits of your gift while you are still alive, it can also reduce the amount of tax paid when you die.

Get professional advice

Receiving an inheritance is one of the times when financial advice is crucial. Receiving an inheritance will almost certainly improve your own financial position. That means you should review your own circumstances, and get advice on the investments that are right for you. At Continuum we would be happy to provide any help and advice you need.

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

Your home may be at risk if you do not keep up repayments on a mortgage or other loan secured on it.

The Financial Conduct Authority does not regulate wills, tax and trust advice.

Tax treatment varies according to individual circumstances and is subject to change.

Get in touch

If you would like to discuss further please call us on 0345 643 0770, email us at [email protected] or click on the ‘Contact Us’ link below. Thank you.

Book a Meeting

If you want to get a free consultation without any obligations, fill in the form below and we'll get in touch with you.

    Sign-up to our free weekly online publication

    How can we help you?
    Scan the code