Inheriting money, whether a large sum or a small amount, can leave you wondering about the best way to handle it. The UK offers a wide array of options for saving and investing this capital, and in this article, we provide guidance to help you make informed decisions. Remember, while this information is helpful, it’s no substitute for personalized financial advice.
Assess Your Current Financial Situation
When you receive an unexpected influx of cash, it’s natural to start fantasizing about how to spend it. However, it’s important to pause and critically assess your financial situation. Begin by taking stock of any existing debts, such as loans or credit card balances that may incur high-interest costs. Paying off these debts can provide immediate financial relief and improve your overall situation.
If you have a mortgage, consider whether it makes sense to use a portion of your inheritance to pay down some of the balance. Reducing your mortgage can ease monthly payments or bring you closer to clearing your loan entirely. Be sure to check if your mortgage lender imposes any early repayment penalties.
Next, think about your financial safety net. Unexpected events—like job loss or emergency home repairs—can arise at any time. Financial experts recommend keeping at least three months’ worth of living expenses in cash savings to cover potential emergencies.
Explore Your Cash Options
While it’s essential to have cash savings for short-term needs, the current interest rate environment may not provide significant returns. Although the Bank of England base rate has increased recently, not all banks have raised their interest rates on cash savings accordingly. That said, cash ISAs and high-interest savings accounts still offer a secure place for your money.
Consider what portion of your inheritance you want to keep in cash. Utilizing fixed savings accounts might be a good strategy to prevent unnecessary spending while keeping another portion easily accessible.
Evaluating Investment Opportunities
Everyone has different risk tolerances, so investing may not be suitable for everyone. Weighing your comfort with risk is key to determining how to manage your inheritance.
After addressing immediate savings needs, consider how to put the remaining funds to work for your future. Potential investment options ranging from stocks and shares to real estate can offer higher returns than cash savings. A stocks and shares ISA is often a popular option due to its tax efficiency and accessibility.
If retirement is on your horizon, think about investing in a personal pension. Pensions offer tax relief on contributions, effectively providing a government ‘top-up.’
Before plunging into investments, be mindful of all associated costs, which can impact your returns. It’s generally advisable to invest with a long-term view in mind—preferably three years or more—to help your investment grow, so ensure you’re comfortable with the choices you make.
Additional Resources
To further assist you in making informed decisions regarding your inheritance, consider utilizing these resources:
- Money Advice Service: Guidance on managing inheritance money.
- Gov.uk: Information on wills, probate, and inheritance tax.
Important Risk Warning
All investments carry risks. The value of your portfolio can fluctuate, potentially resulting in a loss of your initial investment. Past performance is not indicative of future results. If you are uncertain about whether an ISA or pension is right for you, seeking independent financial advice is recommended.