Inheriting a portfolio of shares or investment funds and trusts can be a boon that transforms your finances.
But however welcome the bequest, there is much to investigate and decide on when taking over someone else’s invested assets – not least minimising any tax bill.
Your main options will be to keep the inherited portfolio intact, cash it in, overhaul and integrate it into your own investments, and to give it away.
Below, money experts explain the 10 steps to take when assuming control of a loved one’s investments.
1. Review your new investments
‘Inheriting a portfolio of investments can be a significant financial event,’ says Rosie Hooper, a chartered financial planner at Quilter Cheviot.
‘It’s important to approach it carefully to make sure it works for you in the long run. Whether you’ve inherited a mix of stocks, bonds, or other assets, taking the time to assess the portfolio and consider your goals will help ensure you’re on the right track.’
Consider your wider plans: Do you want to keep the investments, or sell some or all to fulfill other financial dreams
Hooper says you should take a close look at the types of investments in the portfolio and their performance.
If any have increased in value you will need to think about capital gains tax if you sell them – there is more on this below.
Zoe Brett, a financial planner at EQ Investors, says you might want to retain the investments for their growth potential until you need the cash from them.
However, she stresses you must consider whether the investments are suitable for you, because the deceased might have had a different goal like generating an income from them, or a different attitude to risk.
Myron Jobson, senior personal finance analyst at Interactive Investor, says: ‘Understanding what’s in the portfolio and whether it aligns with your own risk appetite and financial objectives is crucial.
‘An inherited investment portfolio was built around someone else’s financial goals and risk appetite, so it’s important to review it to ensure it aligns with your own.’
2. Consider your own financial situation and investments
‘Once you’ve assessed the portfolio, think about your own financial goals,’ says Hooper. ‘Are you looking for steady income, long-term growth, or a mix of both?’
She says if you’re more conservative with your investments, it might make sense to move into less volatile options, like bonds or dividend-paying stocks.
But Hooper adds: ‘Take your time. It’s easy to get caught up in the emotions of an inheritance, but it’s important to make decisions based on your long-term goals rather than short-term market movements or sentiment.’
Zoe Brett: You might want to retain the investments for their growth potential until you need the cash
Brett says the main things to consider are:
– What you want to achieve
– When you want to access the money in the investments
-How the taxation of the inherited assets interact with your current tax position
– Your wider financial plans like repaying debt, a large purchase or building your retirement fund.
‘If you have your own investment portfolio, there may be the opportunity to transfer the inherited investments to your existing account to be managed in unison with your current holdings,’ says Brett.
‘This can usually be done either by transferring the assets in cash, in which case a professional tax analysis should be undertaken prior to moving anything or by re-registering the holdings from the deceased’s provider to yours.’
Jobson cautions that cashing in an inherited investment portfolio and moving the money into savings might feel like the safest option, but you could miss out on long-term growth.
‘If your financial goals are at least five years away, you could be far better off keeping it invested. Investing offers the potential for long-term, inflation-beating returns that far outstrip savings rates.’
He therefore suggests thinking about just how long you plan to keep money invested, because this plays a key role in determining the right level of risk – higher risk if you have a long-term outlook, or a more cautious approach if you need access to funds sooner.
3. Are your investments diversified
When assessing your inherited investments alongside any existing ones, it’s crucial to keep diversification in mind, says Jobson.
‘It’s worth checking whether it’s properly spread across different asset classes – such as shares, bonds, and funds – as well as across sectors and regions.
‘Holding too much in a single company, industry, or country can leave you exposed if market conditions change.’
He adds: ‘Reviewing the portfolio also helps identify any costly or underperforming investments that could be replaced with better-suited alternatives.’
4. Do you have debt to pay off
If you have debts, then using the money from your newly inherited investments to pay them off should be a strong contender when assessing your options.
‘Using an investment windfall to clear debt can be a smart financial move, especially if you’re paying high interest on loans or credit cards,’ says Jobson.
‘The cost of debt often outweighs the returns you’d get from investing, so paying it off can provide a guaranteed financial boost. Clearing debt also improves cash flow, reduces financial stress, and offers greater flexibility for future financial goals.’
Myron Jobson: Review the platform charges levied on the inherited portfolio, because if it is large a flat fee can be more cost-effective
5. What admin is necessary
The executor or administrator of the will, also known as the ‘personal representative’, will be doing the legwork in distributing the estate. You may or may not be undertaking this role, in addition to being a beneficiary.
Brett says the personal representative (assuming it isn’t you) should work with you to register the investments into your name.
That is unless you are giving them away under a deed of variation, on which topic see below.
‘Re-registering shares and investment funds into a new name can take weeks or even months and typically involves the legal personal representative sending the death certificate, legal documentation and completing forms with your personal information as the new owner of the assets,’ says Brett.
‘Once the assets are in your name, you need to decide what you would like to do with them; keep them, transfer them, gift them or cash them.’
Jobson says you should review the investment and platform fees levied on the inherited portfolio.
He explains that if it is a large portfolio – or it will be once it is merged with your own – using an investment platform that charges a flat fee can be more cost-effective as it becomes relatively smaller compared to percentage-based fees.
Jobson says you should factor in any trading fees, which can add up.
6. Can you take advantage of marriage tax break
There is an important perk to be aware of if you are a spouse or civil partner inheriting investments that are held in an Isa.
It’s called an Additional Permitted Subscription.
Brett explains the rules: ‘Assuming death occurs after 6 April 2018, this effectively increases your own Isa allowance by the value of the deceased’s Isa as at the date of death or the date the legal personal representative distributes the assets.
‘You must have held an Isa at the time of the deceased’s death.’
‘If you fund the APS with cash, the APS must be used by the later of three years following the death or 180 days of the estate administration finalising.
‘If the APS is used by transfer of the shares and investment funds directly into your Isa this must be done within 180 days of the assets being distributed by the LPRs.’
Jobson says the inherited Isa allowance – the APS – allows a surviving spouse or civil partner to inherit the Isa benefits of their deceased partner.
‘This means they can add an amount up to the value of the deceased’s Isa savings to their own Isa allowance, in addition to the standard annual Isa limit of £20,000 for adults.
‘For example, if your partner had £10,000 in Isas, you could contribute this amount to your Isa on top of your current allowance, enabling you to shelter more savings from tax.’
Jobson says this is an invaluable way to preserve the tax efficiency of family savings, but you need to check the rules with your Isa provider and act within the required timeframe.
Rose: Hooper: It’s easy to get caught up in the emotions of an inheritance, but it’s important to make decisions based on your long-term goals
7. What other Isa rules apply
‘If the assets are already in an Isa, the estate can continue to benefit from the Isa’s tax advantaged status for a period with some conditions,’ says Brett.
‘The date of death must be after 6 April 2018 and no further monies can be paid in post death.’
She says the Isa will retain its income and capital tax exemptions until one of the following three things happen:
– The Isa is closed; or
– Administration of the estate is finalised; or
– Three years after death, if that is sooner.
8. Do you want to give away the investments
If you inherit investments, then you will want to decide if you need the money or want to give these assets away, perhaps to mitigate inheritance tax, says Evelyn Partners’ head of estate planning Ian Dyall.
‘You have a two-year window from the death of the person you inherited from to change their will using a deed of variation, to leave the money to a different beneficiary or to a trust which you can continue to benefit from if necessary.
‘The benefit of gifting the money this way, rather than accepting the inheritance and gifting it personally, is that the gift will be immediately outside your estate for inheritance tax.
‘And, if you leave it to a trust, you can potentially benefit from the money without it forming part of your estate for inheritance tax.’
Dyall says if you accept the inheritance and gift it personally, you will need to live for seven years and cannot retain a right to benefit from it, or it will still be liable for inheritance tax.
Brett says the deed of variation can be drawn up by a solicitor to bypass you as the beneficiary of an asset, passing it straight on to an individual or individuals of your choosing.
She notes that once a deed of variation is in effect, it cannot be revoked.
Ian Dyall: ‘You have a two-year window to change a will using a deed of variation, and leave the money to a different beneficiary or a trust
9. Check the capital gains tax liability
If you decide the portfolio is unsuitable for your investment goals, timeframe and risk appetite you’ll need to reinvest some or all of it, says Dyall.
‘When doing this you need to consider the capital gains tax implications. The base cost for calculating any gain is likely to be the value of each share on the day of death of the person you inherited from.’
But Dyall warns there are actions the executors might have taken that could have changed the base cost, so you should get that information from them so you can make informed decisions about how to…
Read More: Inheriting an investment portfolio: Do you keep it, sell it… or give it away to avoid