When you inherit a sum of money, it can often lead to mixed feelings. Usually, gaining an inheritance will be due to the loss of a loved one, which is never easy. However, it’s worth remembering that the person who named you as their beneficiary would have wanted you to enjoy your inheritance. So, how can you make the most of your newly acquired wealth? In this article, we give some ideas on how you can use your inheritance:
1. Plan wisely!
Yes, it can be very exciting when you suddenly find yourself inheriting a large sum of money. However, before you go out and buy a sports car or a luxury cruise, create a financial plan of how and when you are going to use the money. Acquiring a large sum of money gives you many options – therefore, wise planning at this stage could see your money stretch well into your retirement. Please see our Big life events: Inheritance page…
2. Paying off your mortgage and any outstanding debts
Before you spend your cash, look at your mortgage – how many repayments do you have left? If you haven’t checked your mortgage deal in a while, it might be worth seeing whether it’s in your interest to pay off the remaining balance. However, as every mortgage product has different terms, you should always seek advice from a qualified mortgage adviser.
If you have multiple credit cards where you are paying interest, any loans, or a thoroughly exhausted overdraft, then consider paying these off with some of your inheritance. Okay, so it might not be an exciting way to use your inheritance, but imagine if by paying off your mortgage and debts, you could become “financially free”, either now or in the future?
3. Buying a new house or a holiday let
Most people consider moving house when they acquire a large sum of money. If you are considering buying a property, be careful to check the continually changing regulations. This is especially important if you are looking to buy overseas – for example, there have been many cases where people believe they have purchased foreign property, only to find they may own the building, but they don’t own the land rights. If you buy a bigger home, remember your housekeeping costs are likely to go up too. On a brighter note, you might just be looking for a holiday home, so you can sip a cool G&T by the sea at the weekends – if so, enjoy!
4. Global adventures and luxury holidays
If you have spent the majority of your life working hard, and you always fancied yourself as a backpacker or global adventurer, then your inheritance could give you the opportunity to travel. This will involve a separate level of planning, as more often than not, travel tends to cost a lot more than people expect! Create a spreadsheet and list all the potential costs for flights, overland travel and transfers, accommodation, activities, food and drink, and always allow enough spending money while you’re away. And, always save enough funds to act as a sound financial buffer for when you return home.
5. Luxurious retirement
No matter what age you are, planning for your retirement is important. Depending on what stage of life you’re at, you could find that your newly acquired wealth enables you to retire a lot sooner. Therefore, consider your existing pension plan. If you have a private pension scheme, it could be worthwhile using some of your inheritance to top this up. If you haven’t had a pension review in a while, please talk to one of our team who can look at this for you. We will check all your options and whether your pension is on track to give you the retirement you desire.
6. Savings strategy
A sensible approach to using your inheritance would be to place a pot of money in a high-interest savings account. Usually, the higher the interest, the more rigid the rules will be, but you might decide it’s worth locking some of your money away for a few years to get more from your money. You could also consider saving into a tax-free Cash or Stocks & Shares ISA (or a mix of both). If you’re a couple, you can save up to £20,000 per person using your individual ISA allowance (2018-19) – this would ensure you always have a good financial buffer in place, no matter what you spend your money on.
7. Investment portfolio
Whether you are a novice or an experienced investor, it’s always worth considering an investment strategy, if you inherit a large sum of money. However, the key here is to look at the level of risk you are willing to take and to diversify your portfolio, i.e. don’t invest a large amount into only one fund option. A diverse investment portfolio could lead to more lucrative returns – always seek professional advice before you start investing.
To conclude, remember that your estate value will increase if you inherit, making you more exposed to inheritance tax (IHT) when you pass away. This could have consequences for your children or any dependents in the future. Therefore, make sure you update any existing wills and trusts and consider what strategy to take to reduce your IHT, whether that’s by making gifts, putting money into a trust, using exempt investments or taking out IHT insurance. We can help with all of those things.
If you have recently inherited – or are due to inherit – a large sum of money and you would like help with your financial planning, please get in touch to speak to one of our financial planners. We will look at your inheritance and help you plan for now and for the future.