Inheritance best put towards new home

Plan ahead: Do your sums now to find what savings and investment approach will bring you the best future.My husband and I would like your advice on what to do with a lump sum of about $250,000 inherited from my late mother. We are both 31, own our house ($400,000) and have shares (about $60,000) and an investment property (about $250,000). We have no debt. We have no appetite for risky shares with this money as it has sentimental value. We have an eight-month-old child and plan to have another soon. We are keen savers and are financially disciplined. I do not plan to return to work for several years and we would like to send the children to a private school. We anticipate moving to a more expensive area in four to five years, closer to the school. C.K.

You don’t mention any savings in superannuation and, since this is the best tax shelter available, you should be building this during the next four decades.

However, in the shorter term, over the next five years, you want to be looking for a home near the school you mention, and planning how to meet the school fees.

A top school costs upwards of $20,000 a year these days, increasing as the children approach year 12.

You don’t mention your combined income so I can only assume you are able to meet the fees out of your income. Accordingly, I suggest that you use your inheritance to fund your new home.

You might as well do it now since, if the economy continues to grow we can only assume that so will property prices. Then you can get to know the neighbours in the years before the kids start school. If there is any money left over, put it aside to be used when rearing your children, which always costs more than expected.

I am 30 and my wife is 26. My annual income is $126,000 and my wife makes $20,000 pa. We have $190,000 in her saving account, which gets about 4.4 per cent interest. We also hold $11,000 worth of Australian shares. We are renting and paying $430 a week. We manage to save $4000 to $5000 a month. We have yet to buy our first home. Should we buy our first home or keep going as we are and keep building a deposit for our first home or any future investments? K.B.

You have between three and four interesting decades, the most exciting of your life, of work ahead of you, during which you can receive your work-related incomes and plan what to do with the excess, if any.

Your long-term goals should be to retire in a fully paid-off home in which you want to live and have enough to live on, a target of $1 million being a good start.

In between, you want to educate children, if any, and enjoy life as much as possible, which might include expensive overseas holidays, depending on your tastes.

With a high income, you are well on the way. Perhaps your first step is to buy a home, using your current savings as a deposit, acknowledging that the first home you buy will probably not be your last.

If you can do this and also contribute a total of about 15 per cent of your combined gross income into super, for example 5.75 per cent salary sacrifice over and above your employer’s 9.25 per cent compulsory contribution, that too would be a good start, at least until the children leave home.

If you can meet your mortgage, super and family commitments and still have money left over, start a share portfolio focusing on large companies offering above-average franked dividend yields in your wife’s name, as she is in a lower tax bracket.

I will inherit a home unit from my parent, who bought it in 1982. It became his family home for a number of years, but in recent years has been rented out by him. When I inherit, I intend to continue renting it out. When the property is finally sold by me, would capital gains tax be based on the date of my inheritance or based on its value in 1982? Also, could you confirm if the term ”assets” in probate includes cash when forms ask you to list assets. R.D.

Because your parent owned a pre-1985 property, it doesn’t matter whether he lived in it or rented it out, it remained exempt from CGT.

When you inherit it, it becomes a post-85 property subject to CGT with a cost base equal to the value as at the date of death. If you live in the property, and claim it as your prime residence, it will remain exempt from CGT. However, as you plan to rent it, it will be subject CGT when sold.

And yes, the term ”assets” includes all items, including cash, shares and the like.