7 important considerations if you receive an inheritance

Category: Australia & News

The death of a loved one is clearly a distressing time.

While the receipt of any inheritance May not be at the front of your mind at the moment, it makes sense to have some idea of your financial plans for any inherited assets so you’ve one less thing to worry about.

Better having pre-thought plans than coming cold into the situation and having to make important financial decisions at a time of high emotion.

It’s also worth considering that any inheritance you may receive may emanate from the UK while you’re in Australia, so there are added complications around taxation and accessing the assets bequeathed to you.

So here are some key considerations to bear in mind as you put plans in place to deal with an inheritance.

1. Don’t make any rushed decisions

Whenever you do receive any lump sum – including an inheritance – not doing anything can often be the best initial course of action.

Take a deep breath and look to put a plan together for the money or other assets, rather than making any rushed decisions that you may come to regret later.

The assets you receive may well amount to a life-changing sum that could set you up for the rest of your life. Mistakes may well be irrevocable and could cost you money.

Even with a relatively small sum in relation to your overall wealth, it’s prudent not to rush any decisions.

2. The source of the bequest will be a key factor

A key issue that will have a bearing on your planning process is where the money, and other assets, are currently.

If your benefactor was resident in the UK and you’re currently in Australia, that will add a layer of complexity that needs to be borne in mind when you’re making plans.

For example, there are different regulations around the taxation of the value of an estate in the UK and Australia. Inheritance Tax (IHT) in the UK will be settled on the overall value of the estate of the deceased. Conversely, there are no inheritance or estate taxes in Australia.

There may well also be different issues around Capital Gains Tax (CGT) and the implications, and cost, of both disposal and transfer of the assets between countries.

You may find one of our previous articles on UK-based inheritance useful. We would also strongly recommend you get expert advice from an experienced tax planner because, as you’ve already read, mistakes can prove costly and are often irrevocable.

3. You’ll need to plan for managing different asset types

The type of assets you inherit will also likely have a bearing on your planning.

For example, deciding what to do with any UK property you inherit will be an important issue to resolve, and some advance planning could make this easier to manage.

Likewise, you’ll need to put a plan in place regarding any investments such as share and fund holdings that form part of your bequest.

If you inherit a varied portfolio of assets, you should consider these alongside any investments you may already hold to ensure you maintain an appropriate mix across different markets and sectors.

4. Clearing your debts should be a priority

Receipt of a substantial inheritance gives you a chance to secure the financial future of yourself and your family.

Ensuring you’re as debt-free as possible should be a big consideration in this regard.

High-interest debt, such as the rates of interest you could be paying on credit cards, can leave a severe dent in your disposable income. By looking to clear this, you’re giving yourself one less thing to worry about, and freeing up income that could be better targeted elsewhere.

The interest rate payable on any mortgages you have will probably be lower, so paying off any outstanding mortgage loan may be more of a difficult decision and could be dependent on the size of your inheritance and the amount of loan outstanding.

5. It’s important to properly assess your priorities

Aside from clearing debt, how you use the rest of the money will inevitably be dependent on your personal circumstances. Some steps you may want to consider could include:

  • Supporting your family – parents on the one hand, children on the other
  • Using some of the money to boost your super fund
  • Making charitable donations.

One thing we would add is to remember to enjoy yourself with some of the money if that’s applicable. Often, it’s exactly what your benefactors would have wanted you to do.

6. You may want to invest for the future

It’s likely that you’ll want to invest some of the money.

Again, we’d recommend taking your time, and getting expert advice, before you do this.

For one thing, you should ensure that your investment portfolio is well-diversified and carries a level of risk that you’re comfortable with.

Your investment timescales will also be a key issue. In particular, you’ll need to decide exactly when you want to put money into the markets, and what your investment timescales are.

7. Don’t forget to update your will and legacy

It’s likely that receiving a large inheritance will significantly alter your overall financial position. That change should be reflected in your will if you have one.

If you don’t currently have a will in place, you should make setting one up a high priority.

You should also think about your own legacy, who you want to pass your wealth to when you die, and how the value of your estate could affect the lives of your family.

A substantial legacy can secure your future and, by taking the right steps, you can ensure your legacy will likewise secure the future of your loved ones.

Get in touch

You should always be aware of the financial planning and tax implications before you start acquiring assets or spending any of the money you receive.

If you have any queries regarding any aspects of inheritance planning, please get in touch with us.

Please note

The value of your investment 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.

This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of HMRC and ATO legislation, which is subject to change.