What should I do with my inheritance?
An inheritance often arrives alongside grief, so there's no rush to act. Take a few months before deciding anything, then ask how big the inheritance is relative to your current savings. If it's significant, it's worth reviewing your financial plan if you have one or a great opportunity to create one if you don't. If it's smaller, allocate it like any other spare cash across a pension, ISA, or mortgage.
Give yourself time before deciding
The early weeks are rarely the time for big financial decisions, so there's no harm in waiting a few months before making any longer term decisions. Holding the money in a competitive easy-access or notice savings account keeps it safe and earning interest while you think clearly.
Resist the pressure to act fast. Sudden lump sums attract unsolicited advice and product pitches, and decisions made under stress are often ones people regret.
It's okay to set some aside for yourself
Being sensible and planning for the future is a great instinct, but enjoying some of it now is just as valid. Many people ring-fence a small slice, often 5 to 10%, for something meaningful: a trip, a treat, or a gift in memory of the person. Spending a little today and planning carefully with the rest can happily go hand in hand.
How significant is it relative to your savings?
The right approach depends less on the amount and more on its size next to what you already have. A good first step is to compare the inheritance with your current savings, investments, and pensions combined.
A sum that's modest beside an established portfolio is a very different decision from one that doubles your net worth. That single comparison usually tells you which of the two routes below fits.
If it's significant: a chance to plan ahead
When an inheritance is large relative to your wealth, it's an opportunity, not just a windfall to park. It can change what's realistic: retiring earlier, clearing the mortgage, or funding goals you'd shelved.
Most people in this position step back and revisit the plan as a whole. That often means spreading the money into pensions and ISAs across several tax years to use annual allowances, and thinking about the inheritance tax position of your own estate. Given the stakes, professional advice frequently pays for itself here.
If it's smaller: treat it like spare cash
If the inheritance is modest next to your savings, there's no need to overthink it. Assuming your foundations are in place, an emergency fund of 3 to 6 months and no expensive debt, it's usually best handled like any other spare money:
- Pension: generous tax relief makes it efficient for long-term, retirement-focused money, especially for higher-rate taxpayers.
- ISA: the £20,000 annual allowance offers tax-free growth with penalty-free access.
- Mortgage overpayment: a risk-free return equal to the interest avoided, more attractive when rates are high.
See where should my next £1,000 go for how people weigh these up.
Is an inheritance taxed?
In the UK, inheritance tax is usually paid by the estate before money reaches you, rather than by you as the recipient. It's typically charged at 40% on the value above the £325,000 nil-rate band, though various reliefs can often raise that threshold.
Once the money is yours, any interest, dividends, or gains it later earns can be taxable, which is exactly why tax wrappers matter.
