Knowing what to do with a lump sum of money, at what is often an emotional time, can be quite difficult. Such a bittersweet situation; the loss of a loved one is never pleasant, but the gift they have left you in the form of inheritance can be a blessing.
Deciding how to best use this money can be quite overwhelming. Pay off the mortgage, take a holiday or purchase a new car… they’re all great ideas. But before you come to a decision, read through the below considerations.
If on the other hand, you inherited the family home, the good news is there is no inheritance tax in Australia. But the bad news is there is Capital Gains Tax (CGT). You have to watch out for CGT if you are acquiring an asset as a result of a will. The most common assets are property and shares.
There are ways to avoid CGT. If for example, your mother was living in the family home up until her death and the home wasn’t used to produce an income, then you don’t have to pay CGT if you:
If you hold on to the property for more than two years, rent it out, and then sell it at a later date, CGT will apply to the difference between the purchase value and the sale price. So, if it was worth say $150,000 back in 1987 and you sell it for $500,000, then you will be liable for capital gains on 50% of the $350,000 nominal capital gain.
What you need to know
The information in this article is based on a hypothetical case study. Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning Pty Ltd and other companies within the AMP group will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.Some of the information in this article is based on our interpretation of the law. It is a summary of the subject matter covered and is not intended to be comprehensive tax or financial advice. No reader should act on the basis of this article without obtaining specific professional advice.