In a nutshell
Even though it's the most difficult of times, there are quite a few things you need to do when someone close to you passes away. Some people find that sorting out practicalities helps them to gain a measure of distraction from what's happened.
In the short term, you'll need to:
- Obtain the medical certificate
- Register the death within five days
- Make funeral arrangements
- Let government organisations know
- Most local councils have a 'tell us once' service so you don't have to contact lots of different departments.
- You can find out about this on the HMRC website
- Notify banks and financial organisations such as insurers
- If you're an Aviva customer you can notify us now
Thinking about inheritance
Money will be the last thing on your mind... but you'll want to make sure that everything goes smoothly, according to the wishes of the person who has died.
If you're dealing with the estate, there are some important issues to consider:
- Did they leave a will?
- If not, the rules of intestacy will apply
- You can read about these rules on the gov.uk website
- You may need to apply for grant of representation - this gives you the right to deal with the person's property (sometimes called 'probate')
- You can find out how to do this on the gov.uk website
- You'll need to get together details of the person's assets (such as their property, money in bank accounts, investments and so on)
- Make sure you've paid any outstanding bills and taxes
Once you've attended to these issues, you'll be able to think about arranging for the estate to be distributed - either according to the person's will, or under the rules of intestacy if they didn't leave one.
You can find out more about this process by visiting the Wills, probate and inheritance section of the gov.uk website.
If you inherit some money
It may be hard to think clearly at such a difficult time, but you should take some time to consider how you might best use any inherited money. The first call on any amount you inherit might be paying off debts or addressing long-standing financial commitments such as a mortgage.
- In the short term, you could have plans such as a holiday, a car, or maybe a deposit on a new house for yourself or another family member.
- Longer term, you might consider supporting your family by paying for education fees.
- Thinking further ahead, you may be keen to pay an amount into your pension fund to help secure your own future when you retire.
Whatever your plans may be, it may be worth waiting a while before making any commitments.
- You could leave the money in a savings account or cash ISA (where you can save up to £20,000 tax free in the 2017/2018 tax year), without having to pay any tax on the interest) while you decide what to do. Please bear in mind that Aviva doesn't currently offer a cash ISA.
This will give you time to understand how the money you've inherited would fit in with your overall financial planning - and allow you to find out how taxation might affect your decision-making.
Don't need the money yourself?
Many people inherit money at a stage in life when their children, or even grandchildren, have more urgent financial needs than they do.
There's also a possibility that the money they receive would make their own estate liable to inheritance tax, when the time comes for their children to inherit from them.
If you find yourself in circumstances such as these, you may be able to 'skip a generation' and pass on an inheritance directly to the people who will one day be your own beneficiaries.
You can do this through a document called a deed of variation. If you're considering this, you should bear in mind:
- An inheritance can normally be changed only within two years of the person's death
- The variation needs to be set out in writing by the person giving up the inheritance
- It's a good idea to employ a solicitor to help with this
- The deed of variation needs to state that the tax position of the deceased person's estate will be affected
If you would like financial advice, please contact your financial adviser. If you don't have a financial adviser you can find one at unbiased.co.uk. An adviser will make a charge for this.
What about tax?
There are three different taxes which you need to think about when you inherit money:
Inheritance tax (IHT)
This is only due if:
- The taxable estate is worth more than £325,000 for an individual. This could increase up to £650,000 for a married couple or registered civil partners.
- Tax is charged at 40% on anything above the £325,000 threshold and is usually paid out by the estate of the person who has left the money – unless the will states that the person receiving the money has to pay this tax, or if there isn't enough money in the estate.
From 6 April 2017 an additional residence nil rate band (RNRB) may apply to the deceased’s main residence as long as it is left to a direct descendant and the estate is valued at less than £2,000,000. Beyond that figure, the RNRB (and any transferred RNRB) will be gradually withdrawn. Any unused portion can be passed on to the surviving spouse or civil partner. The maximum available amount of the RNRB will increase yearly: to £100,000 in April 2017, £125,000 in April 2018, £150,000 in April 2019 and £175,000 in April 2020.
You may have to pay income tax if you're going to receive an income on any assets you inherit. This might include interest earned on money, dividends on shares or rental income from letting a property.
Capital gains tax
You may also have to pay capital gains tax if the assets you inherit increased in value between the date of the deceased person's death and the date you dispose of these assets.
Saving or investing your inheritance
By following the links below you can find information on some of the choices which Aviva can offer you when you're considering options for money you've inherited.
Stocks and shares ISA
If you've weighed up all your options and decide that you want to invest the money you've inherited, you could consider Aviva Stocks & Shares ISA.
Stocks and shares ISAs are a tax-efficient way to invest in stocks and shares, as you don't have to pay income tax or capital gains tax on any investment growth. Some investment returns may be received by the ISA manager with tax credits, or after tax deductions, which cannot be reclaimed.
The Government allows you to invest up to £20,000 in an ISA within the 2017/2018 tax year. You can withdraw money and pay it back in again without counting towards your ISA allowance provided this happens in the same financial year as the withdrawal. If you've used up this allowance, but still want to make more investments, you could think about an Aviva Investment Account. Bear in mind that you may have to pay capital gains tax on any returns.
A Stocks and Shares ISA and funds in an Investment Account are medium to long term investments (at least 5 to 10 years). Minimum investment limits and charges apply.
The value of investments can go down as well as up, and you may not get back the amount you invested.
You could also consider paying some or all of your money into your pension plan. A pension plan is a long-term investment plan designed to help you build a pot of money you can use to fund your retirement.
If you don't already have a pension, you could think about taking out an Aviva Pension.
To find out how much your pension might provide you in your retirement, take a look at our online calculator My retirement planner. It's easy to use and only takes a couple of minutes. As with all investments, the value of a pension plan can go down as well as up, and you may not get back what you invested.
Pension Wise has been set up by the government and offers free and impartial guidance for people retiring with defined contribution pensions. It will help you understand what your choices are and how they work.
You'll be able to get help on the Pension Wise website, over the phone or face to face.
If you are approaching retirement we recommend you get guidance or advice to help you understand your options.
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