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Receiving an inheritance

It’s no surprise that the impact of sudden, unexpected and unearned wealth on a family or an individual has been a favourite theme in literature for the last two centuries. From Bezukhov in War and Peace to much of Charles Dickens’ work, inheritances have proved to be double-edged swords.

Inheritances can cause strong emotional reactions that may lead to poor financial decision-making. On the one hand, you may suddenly have a means of realising many of your goals and dreams. On the other hand, if you have inherited as a result of the death of a parent or close relative, you may suddenly be presented with a significant amount of money just as you are grieving your loss. Many people in such circumstances feel that they don’t deserve their new wealth.

If it isn’t handled appropriately, the pressure of the windfall can be stressful, upset your relationships and complicate your finances. This reaction is so common that psychologists have identified it as a mental health condition: sudden wealth syndrome.

There is much that can be done to ensure that you enjoy and benefit from your new wealth. At Investec, we will be able to help you to take a step back and think about how to best use your money for the long-term benefit and security of both yourself and your family. Depending on the amount received, and your own circumstances, you could use the money to pay off debts, pay off your mortgage or top up your pension. You may choose to help your children or grandchildren with their university fees or with the deposit for a first home. Whatever you have in mind, your Financial Planner will help you to understand your options and set some goals. Having a clear plan will ensure you maximise the opportunities created by your change in financial circumstances.

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The taxman collected £5.4 billion in inheritance tax payments in the tax year to April 2019.

HMRC, 2019

Just received an inheritance? Read on.

How soon will I receive my inheritance?

Will I be hit with a huge tax bill?

How much will I need to live a comfortable lifestyle?

How can I structure my windfall to best effect?

How soon will I receive my inheritance?

Most estates are settled within six to nine months in the UK, but it depends on the complexity of the estate. Several factors can delay the settlement. Share certificates can be lost, some rare assets can be difficult to value, property sales can take time, and some beneficiaries may be difficult to track down. Your Financial Planner will be able to liaise with the executor of the will on your behalf, should you have concerns.

Will I be hit with a huge tax bill?

The estate of the deceased will pay any potential Inheritance Tax before you receive your inheritance so normally you will not have to worry about settling any tax demands. 

 

If you received a gift of money, property or valuable possessions from the deceased within seven years of their death then you may need to pay Inheritance Tax. If you inherit shares or property and then later sell them, you may be liable for Capital Gains Tax on any profits. 

 

Our Financial Planners can help you mitigate any tax demands with careful planning.

How much will I need to live a comfortable lifestyle?

The amount of capital you need to maintain your chosen lifestyle will depend on many factors. These include your own definition of comfortable but also your age.

 

A cash flow analysis is extremely helpful in ensuring that your assets are sustainable. It will allow you to keep track of regular outgoings such as mortgage payments, school fees and insurance premiums. But you’ll also want to keep an eye on discretionary expenditure such as holidays, cars, clothes and entertainment.

How can I structure my windfall to best effect?

There are several common, and harmful, mistakes that can lead to people squandering an inheritance and doing things they later regret. Most come as a result of letting the money control you rather than the other way around.

 

Spoiling yourself with impulse purchases can escalate into a habit which can quickly erode your capital. This can be spending on yourself or on family, friends and even your favourite charities. This is noble, but if it is done in an unstructured and tax-inefficient way, you can soon find yourself running out of funds. On the other hand, people who suddenly come into a large sum of money can become almost paralysed by inertia. They are so afraid of doing the wrong thing, such as investing in a bear market, that they end up doing nothing.

 

Luckily, all of these mistakes can be avoided by taking time to devise a proper plan that takes account of your life goals. Getting professional advice on how best to achieve these will enable you to benefit from your new wealth rather than suffer from it.

Ready to have a conversation?

If you’d like to have an informal, no obligation, conversation about how best to manage your inheritance, please get in touch.

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Throughout my time with Investec, I have to say that the guidance and advice I have received from them has remained consistently high, sound and productive.

Simon F, Leeds

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With the confidence that comes from having your money invested strategically to preserve your wealth, you and your family can focus on achieving your life goals and dreams.

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