If you are about to inherit money, property or possessions, you may find yourself conflicted with mixed emotions. You’re likely to be grieving, which is a very difficult time for most people. Despite your bereavement, you may have the opportunity to pay off debts or create a level of financial security for you and your family. It is natural to feel guilt, as well as a sense of gratitude. If you do find yourself acquiring a large level of wealth, what do you do next? Our guide below gives tips on what to consider so you can make the most of your inheritance.
“In this world, nothing can be said to be certain, except death and taxes.”
Will I need to pay any tax?
The first thing you need to consider is whether you will need to pay any inheritance tax (IHT). If you have inherited an estate worth more than £325,000, you may need to pay 40% inheritance tax. If you have inherited a family home and you are a direct descendent, you may be eligible for the recently increased ‘main residence’ allowance, which adds £100,000 to the value of an estate – see our previous blog for more details on this: Property – Top Tips for Effective Estate Planning. If an estate is comprised of property, possessions and any other assets, your inheritance may be complicated, especially if there are others involved. Inheritance tax may apply to the following:
• Money including cash in bank accounts
• Property including the home of the deceased and any business-related property
• Cars, vans or other vehicles
• Investments of the deceased
• Life insurance policy pay-outs
If the deceased’s Will isn’t clear or was made several years ago it should be reviewed urgently. If property has been left into a Trust on death then the enhanced allowance will not apply and you should seek expert advice. It is worth talking to the solicitor acting on behalf of the deceased and a financial planner.
If there isn’t a Will in place, and you decide to sell inherited property during probate – and the value of the property has increased since the person died – you will be liable for Capital Gains Tax. Probate can prove to be a lengthy and costly process, so it is vital you understand any potential outgoings at the very outset. Always seek professional advice before you make any big decisions.
Do I share my inheritance?
If you have a partner or children, you may decide to share your inheritance with them. Depending on the sum of your newly acquired wealth, it might be worth securing their future inheritance by looking at a Family Protection Trust, which is a bit like a ‘safety deposit box’ to protect your own wealth and assets. The trust would be in your name, but would pass to your family after your death and can help to protect against inheritance tax. It is worth noting that if you transfer everything over to your family, they may be liable for Capital Gains Tax.
If you decide you would like to give money away to charity, the inheritance tax will reduce to 36%, if you give 10% of your wealth away. This could be a worthwhile way to use part of your inheritance, as you would be giving money to causes that are important to you, rather than letting the government decide how to spend your money.
Once you have learned the full extent of your inheritance in terms of money, property and possessions, your next step would be to create a financial plan. This will help you make the most of your money. Consider the following:
• Mortgages or any property-related debts – could you pay these off?
• Savings – could you put some of the money into a savings account or an ISA?
• Investments – are you interested in investing some of your wealth to potentially see your money
If you would like more information on inheritance, please visit our Big Life Events – Inheritance page.
If you have recently found yourself inheriting money, property or other assets, and you would like advice, please get in touch and speak to one of our financial planners