There may be a time in your life when you inherit a sum of money from a loved one. This inheritance is worth a lifetime of work, so deciding on the best way to spend or invest their legacy is an important factor to consider.
According to a study carried out by the Office of National Statistics (ONS), more and more individuals are receiving substantial legacies. The data showed that 1.6 million adults had received an inheritance worth £1,000 or more, with half of these legacies worth more than £10,000. The survey also highlighted that the total sum received in inheritance in the UK is on the rise due to the financial rewards reaped from the property market. With this being the case, more and more individuals will need to consider the different avenues available because if you’re not careful when making your choice you could end up missing out on potential returns, or even see the value of your cash start to fall.
>Whether it’s £100,000 or £5,000, every little counts towards your future. You might have immediate plans for the money, a new car or a dream holiday, but if you want to secure your finances for the future, receiving a lump sum can provide a great opportunity to either jump-start an investment plan or top up your pension payments.
Here are some frequently asked questions you may need to consider after receiving an inheritance:
Should I use the lump sum to pay off any debts?
After receiving a lump sum, you may decide to pay off any remaining debts you have. If you have a mortgage, there is an option to increase your payments. However, you will need to check with your mortgage provider first to find out how much you can overpay without penalty.
Save the money for a rainy day?
In order to gain access to some or all of the inheritance in an emergency, you may prefer to put the money away into a Cash Isa. There's no income tax to pay on interest and no capital gains tax on profits, which makes them ideal for long-term savings.
Should I consider the buy-to-let market and invest in bricks and mortar?
Growth in house prices and rewarding buy-to-let yields are making investing in property an appealing option. There can be a number of advantages to this, namely the income from renting the property and if property prices increase, so will the value of your investment. However, there are a number of draw backs that you should consider before visiting an estate agent.
Use my recent windfall to grow my pension pot before I retire?
You may wish to consider using your inheritance to pay extra contributions into your pension, which is a tax-efficient way of topping up your income when you retire. Increasing your payments by a small amount every year could make a big difference to your final pension pot. However, with a number of people tied up in poor performing pensions, it is vital to review your current pension before making additional payments.
Should I invest the money for future returns?
Investing your inheritance demands some difficult decision-making. There are dozens of options available, from investment ISAs, stocks and shares and bonds. A single investment product won’t work for everyone, so it is important to consider your personal situation in order to find the best investment or package for your needs.
In order to fully understand the benefits and implications each option will have on your future finances, it is important to speak to a Financial Adviser. There are no easy answers and a financial avenue that works for one person may not be appropriate for another. At Retirement and Investment Solutions, we tailor our advice and recommendations to your personal circumstances, ensuring that any financial avenues or investments work for you and your needs.