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5 important things to remember when inheriting an investment

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Figures from a recent survey, published in the Independent, found that almost half of UK adults (48%) wouldn’t know what to do if they inherited an investment.

Managing a sudden windfall can be complicated. This is especially true if an inheritance is a result of a bereavement, and therefore comes at an already stressful time, but Hartsfield Planning is on hand to help.

There are some key things to remember if you receive a large investment as an inheritance, and some common mistakes to avoid. Here are just a few of them.

1. Don’t rush into a quick decision

A sudden, and potentially unexpected inheritance could be the largest one-off windfall you receive in your lifetime.

You’ll have some important decisions to make. And while there are many ways in which you could spend or invest the money, it is important not to rush into a decision you could regret later.

Take some time to allow the news to sink in, especially if the windfall is the result of a bereavement. You might have to take the deceased’s wishes into account too.

Be sure to take expert financial advice. Doing so at this point should prevent you from making a bad or irreversible decision and gives you the best chance of managing the investment tax-efficiently.

2. Be wary of immediately cashing in the investment

You might be tempted to cash the investment in immediately, especially if you have the money earmarked for a particular one-off expense such as a family holiday or house renovations. You might cash it in even if you don’t have an immediate plan.

The Independent confirms that 8% of those surveyed would leave the money in their current account, while 38% would put it in their savings account.

With the Bank of England base rate at a historic low of 0.1% and inflation rising well above the central bank’s target of 2% (reaching 3.2% in August), this might not be the best option for you.

With savings rates low and the cost of living rising, money held in cash is effectively losing value in real terms. By leaving it invested, you have the chance of combating inflation and even seeing your investment grow.

3. Be sure to factor in your wider financial plans

A long-term financial plan should consider your whole financial position, including your pensions, savings, and investments.

Take the time to think about how your inherited investment fits into these plans. It might open new doors or lead to new opportunities. You might consider using the funds to pay off some of your high-interest debt? Maybe you can now retire earlier than originally planned?

If you already have an investment portfolio, how does this new investment fit in? You might need to rebalance your investments or look again at your level of risk and diversification.

Just remember that if your long-term goals haven’t dramatically changed, your plan probably won’t need an overhaul either.

4. Think about the potential tax implications

Inheriting a large sum of money can have big tax implications. This is especially true if you inherit a pension.

As financial experts, Hartsfield Planning can talk you through your options and the tax ramifications of each, whether the inherited amount pushes your estate over the Inheritance Tax threshold, or your pension investment is in danger of triggering a Lifetime Allowance (LTA) charge.

Read about three potential pension tax traps and how to avoid them if you find yourself in receipt of an inherited pension and be sure to speak to us before you decide.

5. Speak to a professional

Inheriting a large sum can be scary and there is a lot to think about. You’ll need to decide whether you keep the sum invested, and if so, where. If you decide to cash it in, you’ll need to think about how best to use it.

Paying off high-interest debt and providing an emergency fund to protect you if the unexpected strikes could be a sensible option, but the right choice will be different for everyone. Taking a step back – viewing a sudden investment in the context of your entire financial position and long-term plans – can be difficult but professional advice can help.

Get in touch

At Hartsfield Planning, we can help you to manage a sudden inheritance in the best and most tax-efficient way for you, so be sure to speak to us before you make any decisions.

Please get in touch and find out how our team of expert planners can help you.

Please note

The value of your investments (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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