Inheriting money can be life changing, however, it can also quickly become somewhat of a burden. Inheritance imposes a certain amount of responsibility on the recipient, as you’ll have been entrusted by those who are no longer here to use it wisely.

Our Managing Director, Matthew Pescott Frost, has put together a list of the options that may be available to you, while being aided by an adviser.

Every case is very personal to the individual, which is why at Matthew Doulgas, we’d always want to have an in-depth conversation with you first to establish your current circumstances before making any recommendations. 

Once this is complete, we’ll then look to identify what type of investment is appropriate for you depending on your level of understanding, tolerance for risk and capacity for loss if your decision fails to deliver in the short term (while this isn’t usually the case, we always have to be prepared).

Inherited money gift

Pensions offer considerable tax breaks

We’ll then look to identify any tax saving opportunities that may be open to you, with the first recommendation being a pension. Pensions offer considerable tax breaks to encourage us to save for our long term future, and are regarded as a ‘deferred income’. If you have a pension, there may be opportunities to increase what is already within your scheme – either through your existing workplace, or a private personal pension.

It’s important to note that a pension fund can only provide you with an income once you have reached the age of 55 (soon to rise to 57), so you won’t necessarily have access to it for some time – depending on your age. It does however come with many benefits, sheltering your wealth outside of your estate.


The next step is typically an ISA

Once you’ve exhausted all potential opportunities with your pension, we’d then take a look at the option of individual savings accounts (ISAs). These are useful to increase wealth, while also allowing you to retain access to it should the money be required for a major purchase, such as buying a house.

ISAs provide a tax-free haven for your investments to grow, and unlike a pension, it is not taxed when you dis-invest (i.e. take the money out). Every year, you can invest up to £20,000 tax free, which is soon to rise to £25,000 with the introduction of the British ISA.

If you’ve yet to purchase your first home, and are aged between 18 and 40, you can also take advantage of a Lifetime ISA (LISA), enabling you to invest up to £4,000 per year with a 25% government uplift as first time buyers – as long as the value of the property is £450,000 or less.


Don’t be tempted to use a bank account

All of the above options will enable you, as the investor, to access asset-backed investments such as securities and bonds, which tend to grow at or above the rate of inflation. While cash deposits in a bank may seem like the easy option, they’ll never add interest faster than the rate of inflation over the long term – so your money will always be decreasing in value.

Don’t forget, bank accounts are also subject to tax at your marginal income tax rate – which is why we’d never advise leaving a considerable amount of money in one, unless you’ll be spending it in the very near future.


Buying a house is a great way to build wealth

While pensions and ISAs should be the cornerstones to any aspiring investor, there are limits on how much you can invest in this way. There are other types of investments that offer alternatives to building wealth to consider, such as purchasing property. Not only do these assets appreciate in value, but it will also provide you with a home, security, and the absence of the need to pay rent.

Buying a home is also tax efficient if it’s your ‘primary residence’, as this is free from any capital gains tax. A property also provides a secure asset that can be used to access competitive rates of borrowing that may leverage an opportunity to purchase a higher value property, if you decide to upsize.

The opportunities for investment are endless, but the risks of poor investment are real. If you’ve recently inherited a significant sum of money, seek advice from our team of professional financial advisers to make the most of your gift.

Get in touch today for a free initial consultation with one of our team.