Inheriting a large sum of money is a mixed blessing in so many ways. Even though the money may well be welcome, the passing of a loved one can be a traumatic and emotionally painful experience.
However, the inheritance can be an important part of your grieving process. The way you handle that money is part of the legacy that your loved one left behind – so you want to make sure you treat it in a suitably fitting way.
We’ve put together a short guide to help you make the right decision as to how best to deal with a big inheritance. Hopefully the tips we’ve pulled together can help you to decide what you do with your windfall.
A word on inheritance tax
It used to be the case that only the richest estates were affected by inheritance tax but a recent report has revealed how this is changing. While there are some ways that this tax can be mitigated, it’s important to keep the basics in mind.
Here are the essentials of inheritance tax:
- The tax is due on any estate which is worth more than £325,000. Most estates don’t have to pay as they fall below this threshold but rising house prices has meant that the tax is being applied more often these days.
- To work out the tax the executor must add up the value of all the assets of the estate, from property to possessions to cash. If the value is above the threshold the tax is applied at a rate of 40%, or 36% if more than 10% of the estate is being left to charity.
- The executor will usually pay the tax from the inheritance money itself and this should be done within six months – otherwise interest on the tax payment starts to get applied.
If you need any further information, check out the government’s inheritance tax website. It can help keep you right through the process.
Your investment options
When the details of an inheritance payment have been worked out, and you have received the money, it is time to make a decision on investments. Here are some tips on how best to manage the money:
Take stock of your finances:
When you get a big windfall it can be an excellent time to have a look at your financial health. Taking a sober look at how you’re financially placed can give to a clearer idea of how you could best use that inheritance. The government’s money advice service has a great financial health checking tool which can help you here.
It’s easy to splurge the money, particularly when you are grieving and feeling emotionally vulnerable. However, the enjoyment you get out of a big spending spree is not likely to last long – retail therapy is not the best way of coping with difficult feelings. Keep a control of your spending and don’t rush into any investments – in the long run you’ll be glad you did.
Balance the books:
If you have debts then it might be worth spending some of your inheritance to clear them. Personal debt is anongoing worry for families across the country. Loans, overdrafts and credit cards can all weigh heavy on your financial health and clearing them will give you a clean slate and peace of mind.
Establish a nest egg:
You might not have any pressing monetary needs but that’s not to say things aren’t going to change in the future. Even though you may feel that putting your money into long-term investments is the best idea, you should think about putting some aside in an account that you have fairly easy access to. Life can throw up unexpected monetary emergencies so make sure you can take care of them.