Managing an inheritance can be complex, as there’s so much to consider and address in regards to your finances.
However, with expert advice from a modern investment and wealth management service, you can approach your inheritance in a way that’s best suited to building your wealth, and sheltering your money from tax.
Read on to learn how managing an inheritance can work, and why you may need financial advice if you do come into money.
How is money inherited?
An inheritance is the assets which are bequeathed to you when a loved one passes away. These can come in the form of cash, investments such as stocks or bonds, property, and various other things like antiques or jewellery. These assets will often be referred to as that person’s estate.
If you receive an inheritance from someone, you may be required to pay inheritance tax (IHT) on the value of their estate.
The amount of tax you’re charged on your inheritance will depend on the value of the estate, and how it aligns with the IHT threshold.
As a beneficiary, a certain value of an inherited estate will be sheltered from IHT. As of the current tax year 2022/2023, you won’t need to pay IHT on any of an estate that’s below the value of £325,000.
Any value of the estate above this threshold will be taxed at a rate of 40%.
Why should you seek financial advice when inheriting money?
To approach your inherited estate in a way that shelters as much of your money from tax as possible, and gives you the best financial outcome, you should seek financial advice. The benefits of this include:
Unique advice for your financial circumstances
When speaking with a wealth manager, they’ll take into account all the uncertainties and challenges you’re facing when inheriting money, offering advice that’s tailored to your specific circumstances. For example, this will likely include wanting to protect as much of the estate from tax as possible.
Your adviser with then help you create a financial plan that details the outcome you want from the inheritance, and all the steps you need to take to achieve this, helping you to effectively and confidently protect your wealth as you inherit the estate.
Extensive knowledge about IHT
A financial adviser will also have extensive knowledge about IHT, including the ins and outs of allowances, how they apply to your current circumstances, and what you can do to navigate IHT more effectively.
As mentioned above, your adviser can outline all the options that enable you to shelter as much of the estate from tax. This could include making sure the estate is inherited by a spouse, as IHT is not applied to any of the estate that’s inherited by a spouse or civil partner (as of the current tax year).
Also, your adviser could guide you through the process of inheriting a home as part of the estate. If the person you’re inheriting from owned their home, this can increase your IHT threshold to £500,000 – but this only applies to children (including adopted, foster or stepchildren) or grandchildren, and the estate must be worth less than £2 million.
With your wealth manager advising you on how to navigate these aspects of IHT, you’ll be well placed to inherit as much of your money tax-free as possible.
Inheriting money can be tricky, but with the expert guidance of your financial adviser, you’ll have the best approach to managing the inheritance, reaching your desired financial outcome, and making the entire process as smooth as possible.
Please note, the value of your investments can go down as well as up.
