February 2022

5 helpful things to remember if you’ve inherited money from a loved one

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Losing a loved one is a difficult yet sadly inevitable event that you’ll likely face during your lifetime.

Alongside grieving and being there to support your family, it’s likely you’ll also have an inheritance to deal with at this time.

Whether you’ve been left with cash, investments, or even property, it’s crucial to stay on an even keel and make decisions that are sensible both now and for the future.

So, here are five things to remember if you’ve inherited money from a loved one.

1. Take your time 

The first thing to remember when you receive an inheritance is that you have time to make decisions.

Often, administering someone’s estate is an emotionally draining process, with many people wanting to finish it as soon as possible.

Meanwhile, handling an inheritance is different to your other responsibilities. Once the administrative parts are out the way and you’ve received your inheritance, there’s no real time pressure on you here.

So, take a beat and make choices incrementally. This can help to ensure that you make rational decisions, rather than ones that are influenced by emotions.

2. Think about your goals for the future

The benefit of taking your time with your assets is that it gives you the space to think about how this new wealth could support you in the long term.

You’ll have many different options available to choose from when you receive money as an inheritance, and a useful way to make a decision is by thinking about the future.

So, ask yourself: what do you want to achieve? In the short term, you may just want to live debt-free. Meanwhile, in the long term, you may be thinking about an early retirement or perhaps living abroad.

From there, you can look at specific ways you can use your money to drive you towards your goals. This could include:

  • Creating an emergency fund
  • Paying off debts
  • Paying off part of your mortgage
  • Increasing your pension contributions.

Whatever you ultimately decide to do, using your ambitions as a basis means you can put this money to work more effectively.

3. Learn to think of it as your money

One pitfall many people experience when inheriting money or assets is that they can feel like they’re looking after “dad’s money” or “mum’s shares”.

Thinking in this way can cloud your judgement, making it difficult to make sensible, rational decisions. You may find yourself becoming emotionally attached to particular assets or investments, even if they’re not necessarily right for your financial strategy.

It’s crucial to reframe this thinking and to learn to view it as your money. After all, your loved one left it to you for a reason: so that you could use it for your future.

It can be difficult to do this, so be willing to seek support from your family and friends to help you.

4. Make sure you consider tax

One thing that can easily be forgotten when inheriting money or investments is any potential tax implications.

Any Inheritance Tax (IHT) that’s due will usually be paid by your loved one’s estate, but you may still need to consider Income Tax and Capital Gains Tax (CGT) on cash and investments.

For example, while you do have a Personal Savings Allowance for how much interest you can earn on savings without paying tax, this is only up to a maximum of £1,000 if you’re a basic-rate taxpayer. This falls to £500 for higher-rate taxpayers, and £0 for additional-rate taxpayers.

That means you may have to pay Income Tax on interest that exceeds your Personal Savings Allowance, which could be an issue if you’ve inherited a sizable amount of cash.

Similarly, if you inherit investments that have risen in value since your loved one bought them, you may be subject to CGT when you sell them. You may also face Dividend Tax if you receive dividend payouts on them.

Careful tax planning can help mitigate these charges. For example, holding your inherited assets in an ISA would mean you were entirely free from Income Tax and CGT.

Or you could make the most of your CGT annual exempt amount (£12,300 in the 2021/22 tax year) and sell assets with profits up to this value each tax year.

Keep these factors in mind to make the most of the money you receive, rather than seeing your inheritance diminished by tax.

5. Work with a professional

Above all else, arguably the best thing you can do when you receive an inheritance is work with and take advice from a professional financial planner.

A planner can give you support and guidance during this tricky and emotional time, acting as an impartial individual to help you make decisions.

Most importantly, a planner can make suggestions for your inheritance based on your wider financial situation.

They’ll have you consider your financial goals for the future and then help you make decisions with these targets in mind.

This can give you the confidence that you’re making rational, long-term decisions with your inheritance during this tough period.

Speak to us

At Holborn Financial, we’ll support you through the difficult and emotional process of inheriting money when you lose a loved one.

Email info@holbornfinancial.com or call 020 8946 8186 to find out how we can help you.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.