The receiving and subsequent management of an inheritance at any point present challenges. Learning to manage inheritance can be both financially and emotionally tough. For many, the news that they are to receive a financial windfall comes as a result of the death of a loved one. This can bring not only a new level of financial responsibility but also a mixture of grief that can make navigating these new changes difficult. Our short guide is designed to answer some of the questions that you might have regarding an inheritance.
What is the first thing you should do when you inherit money?
When you inherit some money one of the first things that you should do is take stock of your current financial circumstances. How you manage an inheritance will depend largely on how much you have inherited. But, if you have any debts, it can be a good idea to set aside enough money to pay these off.
Remember you don’t have to rush out and spend all of your inheritance at once. Put it in the bank and have a good think about how you could use it. Keeping some in a separate savings account for emergencies can be a good idea for the future as well.
Do you have to inform HMRC if you inherit money?
One big question that everyone has about inheritance is about HMRC. They may wonder whether they need to let HMRC know that they have been left some money. The short answer is that no you do not need to inform HMRC. Any tax that is due on the money will normally be taken from the estate of the deceased person and this is dealt with by the executor of the will. An inheritance is not classed as income and therefore is not taxable. However, if there is income generated by the inheritance, for example dividends or interest then this is subject to tax. It will need to be declared. If you are unsure where you stand it is always best to speak to a finance professional.
Can you transfer inheritance to your current account?
In the short run at least it is a good idea to transfer your inheritance into your current account. This will make paying off any debts much easier. If however you decide that you are going to keep some to one side as a safety net for emergencies, you may prefer to look for a savings account. Then, you can get a better rate of interest.
How to make inheritance money work for you
Paying off debts and depending on the amount you have inherited is a good way of making your money work for you. It means you will end up paying less interest. Choosing a long term investment account like an ISA is also a good plan that will keep your money safe whilst making it work for you. If you do decide to invest it elsewhere it is important to take your time. Seek professional advice and do not invest it all at once to reduce the risks.
