Inheriting shares can indeed be a financial windfall, but it also comes with its fair share of complexities. If you find yourself in this situation, there are key considerations to keep in mind, particularly around finance, estate planning, and tax implications.
Understanding Inherited Share Portfolios
When you inherit shares, it’s important to evaluate the portfolio carefully. While it may seem like a blessing, it can also pose challenges related to investment alignment and cash flow management. The portfolio may not fit your financial goals or investment strategy. For instance, you might inherit shares in industries you prefer to avoid, such as mining or fossil fuels.
Tax Implications of Inheriting Shares
In Australia, there is no inheritance tax, which is a relief for many beneficiaries. However, there are still tax considerations to be aware of:
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Capital Gains Tax (CGT): For shares acquired before September 1985, the cost basis is the market value at the original owners date of death. For shares acquired after, the cost basis remains the original purchase price. This means that CGT is only triggered upon selling the shares, and it will be added to your taxable income.
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Dividends: If you receive dividends from inherited shares, they will be taxed at your marginal tax rate. If these dividends are automatically reinvested, it’s crucial to manage the cash flow for potential tax obligations.
Strategies for Managing Tax Implications
To minimise your CGT, consider selling inherited shares in smaller parcels across different financial years. Alternatively, you might choose to delay the sale until you are in a lower income period. Additionally, managing dividend tax can be done by turning off dividend reinvestment, allowing you to receive cash directly. This way, you can better manage your tax bills and allocate funds towards other investments or expenses.
Aligning Inherited Shares with Your Investment Strategy
Not all inherited shares will align with your financial goals. For instance, if you prefer growth investments but inherit a portfolio focused on income generation, it’s essential to develop a strategy for realignment. Here are some approaches:
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Divesting Over Time: Gradually selling shares can help manage CGT while allowing you to reallocate capital towards your mortgage repayments or other personal financial goals.
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Holding vs. Selling: Retaining shares can provide passive income, but it’s vital to ensure that your portfolio is properly diversified.
Planning for Early Inheritance
Open conversations about estate plans between parents and beneficiaries can facilitate tax-efficient asset transfers. If the original owner sells shares while still alive, they might manage taxes at a lower marginal rate, which can be beneficial.
Need Help Managing Inherited Shares?
Navigating the complexities of inherited share portfolios can be daunting. It’s crucial to have expert guidance to optimise your financial strategy. At ActOn Wealth, we offer specialised advice tailored to your needs. Whether youre looking for assistance with tax implications or investment alignment, our skilled financial planners are here to help.
For instance, if you are interested in exploring the benefits of Real Estate Investment Trusts (REITs), we can provide a comprehensive overview and help you understand how they can contribute to your wealth creation strategy.
If youre considering property investments, our experienced financial advisors in Melbourne are ready to assist you in building your property portfolio or upgrading to your dream home.
Conclusion
Inheriting shares can be a significant financial opportunity, but it’s essential to navigate the associated challenges effectively. From understanding tax implications to aligning your inherited shares with your investment strategy, the right support can make all the difference. Contact ActOn Wealth today to explore the best options for managing your inherited shares and achieving your financial goals.
