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10 mistakes which could be costly when inheriting investments

·3-min read
A piggy bank (PA Wire)
A piggy bank (PA Wire)

Only around half (52%) of people are confident they would know what to do with investments if they inherited them, a survey has found.

Men are slightly more confident (56%) than women (48%), according to the research from Hargreaves Lansdown

A third of 2,000 people questioned expect to or have received an inheritance.

  • 8% would leave it in their current account

  • 38% would put it in their savings account

Sarah Coles, a personal finance analyst at Hargreaves Lansdown, said: “If we don’t know what to do with the investments, there’s a risk we just cash them in.

“Our survey shows that 8% of respondents would leave an inheritance in their current account, while 38% would put it in a savings account.

“But converting investments into cash could come at a high price.

“If you put the average-sized inheritance of £11,000 into a savings account, you could lose £17,686 over 20 years. This assumes a 0.5% rate on the savings account and 5% annual return if you’d kept the money invested.

“Rock-bottom interest rates – and rising inflation – can quickly erode an inheritance left in the bank.”

– Here are 10 mistakes to avoid when inheriting investments, according to Ms Coles:

1. Acting too fast. Take your time to think about how best to manage the money.

2. Simply converting it to cash. While for some people, cashing the inheritance in may be right for them, bear in mind the eroding effects of inflation mean it could lose value in real terms.

3. Assuming it will last forever. You may be tempted to spend without any real plan, creating a risk you could burn through it quicker than you imagine.

4. Not considering your finances as a whole. Keeping the money invested may seem like a smart move. However, repaying expensive debts, building an emergency cash buffer or topping up your pension could be a better use of the inheritance, depending on your situation.

5. Getting emotionally attached to “mum’s shares”. Some beneficiaries keep investments that do not suit them, simply because they find it difficult to let go. This is even more likely if there are paper share certificates that you feel sentimental about.

6. Not reconsidering your portfolio as a whole. If you already have investments, you need to work out how the inherited ones fit in. They could make your portfolio less diversified and skew the risk level.

7. Ruling out taking advice. You may feel that paying for advice will eat into the inheritance, but if you are not confident about investing, an adviser may help.

8. Not considering the tax position immediately. You do need to pay attention to tax, particularly if you inherit investments in a pension.

9. Not taking advantage of any additional permitted subscription (APS). Savers inheriting an Isa from a spouse or civil partner can apply for an APS, which is an additional Isa allowance.

10. Forgetting about the FSCS (Financial Services Compensation Scheme) protection. If liquidating investments is the right thing to do for you, bear in mind that, if you have more than £85,000 in cash, you should try to spread it across different institutions. This is because if a bank collapses, the FSCS will only protect up to £85,000 held with each institution by each person.

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