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How Should I Invest an Inheritance?

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When someone leaves you money or a gift from their estate, the financial implications may not be the first thing you think of. However, not implementing a strategy to navigate the tax and insurance implications means you could find yourself dealing with future difficulties.

Understanding how to protect your new assets and optimise an inheritance or any other form of lump-sum payment can help mitigate any potential issues. Which means it is important to attend to a few practical financial matters sooner rather than later.


With a proactive and informed approach, you can make the most of your new financial position while avoiding any headaches down the road.

Tax obligations and your inheritance


If you inherit a lump sum minimising any tax obligations is an essential part of protecting your inheritance. Capital Gains Tax (CGT) can apply to the sale of property or shares, and income tax that may come into play if you earn income from your inheritance. This income is usually considered in your taxable income and could push you into a higher tax bracket.


If you’re a high-income earner, you could be taxed at a higher marginal rate. Personalised advice can help you to approach tax management in a way that fits your situation and ensures you retain as much of your inheritance as possible.


Dealing with CGT liability on bequeathed assets can be a harrowing task. However, the first step is to determine whether the assets were acquired by the deceased before or after 20 September 1985 to avoid any potential problems. One way to simplify the process is by obtaining an accurate valuation as of the date of death for any retained assets acquired prior to 20 September 1985.

What should I do with a lump-sum inheritance?


Inheriting a large sum of money can come with both excitement and anxiety. What to do with the funds may not be immediately clear, as everyone’s financial goals and circumstances vary greatly.


It all comes down to your current stage of life, level of financial risk-taking, existing debt, personal relationships and life ambitions. Crafting a personalised plan that takes these factors into account is crucial.


Paying off debt is often a top priority for many, but not all debt is equal. While many aim to eliminate their debt entirely, it’s important to understand that some types of debt can actually be used to create wealth.


Investment or business loans, for example, can lead to the creation of additional income streams and ultimately, an increase in overall wealth. However, it’s crucial to balance the potential returns with the associated risks and ensure that any debt taken on is managed effectively.


Alternatively, boosting your Super, treating yourself to some discretionary spending or giving back to those in need might be your preferred course of action. Ultimately, a bespoke plan can offer invaluable clarity on how to make the most of your inheritance.

When an antique is not an antique?


Navigating the tax implications of antique items can be a murky and confusing process. An antique is an object with significant artistic or historical value that dates back more than 100 years.


Though this ruling isn’t a comprehensive guide, it provides a helpful framework for those looking to understand how antique items should be treated when it comes to taxes.


When it comes to CGT on assets, the point at which an item is deemed an antique depends on when it is disposed of, not when it is acquired. This rule can make things a bit confusing to understand, but it’s important to keep in mind when dealing with items of significant value.


Take, for example, a piece of furniture that is 96 years old when acquired – it would not be considered an antique at that point, but if it were sold five years later at the ripe old age of 101, it would be categorised as a collectible asset for CGT purposes.


In short, if you are gifted and valuable antique it’s important to be aware that there could be tax considerations when you sell the asset.

Insurance of assets


Failing to properly protect valuable assets during the estate administration period can result in devastating losses whether from theft, fire, or other damage. Reviewing insurance protection is a prudent step towards safeguarding assets and ensuring that they are protected against potential risks.


By having the right insurance coverage, beneficiaries can have peace of mind knowing that they are covered in case of unforeseen circumstances. For instance, if the asset is a house, it would be recommended to have appropriate insurance in place, even if the beneficiaries are intending to sell the property.

Final thoughts


Knowing what to do with an estate or lump sum inheritance can be a complicated and stressful process, especially if you’re not familiar with the legalities involved.


For those who unexpectedly become estate beneficiaries, seeking professional advice to create a plan to maximise funds and assets and minimise any tax obligations is strongly encouraged.


Whether you’re dealing with a loved one’s estate or preparing your own, chat with our team of wealth managers who can help guide you through your options and strategy for protecting your assets.

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