What to Do With an Inheritance UK — A Step-by-Step Financial Guide

Receiving an inheritance is often bittersweet — it comes at a time of grief, and the financial decisions that follow can feel overwhelming. The most important thing to know is this: there is no rush. The money will not lose value sitting in a savings account for a few months while you take time to think clearly.

This guide walks through every stage of handling an inheritance in the UK — from the immediate steps after a bereavement through to long-term investment decisions — so you can act confidently when the time is right.

Step 1: Do Nothing Immediately

The advice that nearly every financial planner gives first is the same: do not make major financial decisions for at least three months after a bereavement.

Grief impairs judgement. What feels like a clear-headed decision in the weeks after losing someone may look very different six months later. Use the immediate period to:

• Park any cash in a easy-access savings account earning a competitive interest rate
• Gather all relevant paperwork (will, property documents, pension details)
• Understand the full picture of what you have inherited before deciding what to do with it

The Financial Conduct Authority (FCA) recommends taking regulated financial advice before making significant financial decisions — particularly for inheritances over £50,000.

Step 2: Understand What You Have Inherited

Before planning what to do, you need to know exactly what the estate contains and what you personally will receive. Common inherited assets include:

What You Will NOT Pay Tax On at Inheritance

A common misconception is that beneficiaries pay tax on what they receive. In fact:

• Inheritance Tax (IHT) is paid by the estate, not by you
• You do not pay income tax on the inheritance itself
• You do not pay Capital Gains Tax on receiving assets — only on future gains after the date of inheritance

The estate must have settled any IHT liability before probate is granted and assets distributed. If you receive an inheritance, it has already had any IHT paid (or the estate was below the threshold).

Step 3: Deal With Probate and Practical Admin

Probate is the legal process of proving a will and authorising executors to distribute the estate. It typically takes three to twelve months in the UK, sometimes longer for complex estates.

If you are a beneficiary but not an executor, your role is limited. If you are an executor, you have legal responsibilities including:

1. Registering the death with relevant financial institutions
2. Applying for a grant of probate (or letters of administration if there is no will)
3. Settling the estate’s debts and tax liabilities
4. Distributing assets in accordance with the will or intestacy rules

For guidance on inheritance and estate planning, see our Inheritance Tax guide and the Pension IHT Changes from April 2027 article.

Step 4: Check Your Existing Finances First

Before thinking about what to do with inherited money, look at your current financial position. This is the order most financial planners recommend:

1. Clear High-Interest Debt

If you have high-interest debt — credit cards, personal loans, overdrafts — pay these off first. A credit card charging 20% APR is a guaranteed 20% return on any money you use to clear it, which beats almost any investment.

Note on student loans: Student loan repayments are income-contingent and automatically written off after 30 years (Plan 2). In most cases, making voluntary repayments with inherited money is not financially optimal — you are effectively pre-paying a debt that many people never fully repay.

2. Build Your Emergency Fund

If you do not have three to six months of essential expenses saved in an easy-access account, use part of your inheritance to establish this buffer. Without an emergency fund, any unexpected cost — a car repair, a month without work — could force you into expensive short-term borrowing.

Step 5: Use Your ISA Allowance

Every UK adult has an ISA allowance of £20,000 per tax year (2026/27). Savings and investments held in an ISA grow completely free of income tax and Capital Gains Tax — permanently, not just while the money stays in.

If you have an inheritance to invest, maximising your ISA is usually the first port of call:

All £20,000 can go into one ISA type or be split across types. The allowance is use-it-or-lose-it — it does not roll over to the next tax year.

For a full breakdown of ISA rules, see our ISA Allowance 2026/27 guide.

If you have inherited an ISA from a deceased spouse or civil partner, you may be entitled to an Additional Permitted Subscription (APS) — a one-off top-up equal to the value of the deceased’s ISA. See our Inheriting an ISA guide.

Step 6: Consider Pension Contributions

A pension is one of the most tax-efficient vehicles available in the UK:

• You receive income tax relief on contributions (20% basic rate, 40% if you are a higher-rate taxpayer)
• The money grows free of tax within the pension
• From April 2027, unspent pensions will be included in your estate for IHT purposes — but for money put in now, the rules are still highly favourable

If you are a higher-rate taxpayer, a £10,000 pension contribution effectively costs you £6,000 after tax relief — the government adds £2,500 and you reclaim a further £1,500 through self-assessment.

Annual allowance: You can contribute up to £60,000 per tax year (or 100% of your earnings if lower) to a pension. If you have unused allowance from the previous three tax years, you can carry this forward.

Not working? You can still contribute up to £2,880 net per year to a personal pension (the government tops it up to £3,600 gross).

Step 7: Plan for Longer-Term Investment

Once you have cleared high-rate debt, built your emergency fund, and maximised your ISA and pension contributions, you may still have significant funds left to invest.

Key Principles for Investing an Inheritance

1. Time in market beats timing the market Historically, long-term investors who remain invested through volatility outperform those who try to pick the “right” moment to invest. If you have a 10-year+ horizon, staying invested in a diversified portfolio is generally more effective than holding cash waiting for the “right” time.

2. Diversify across asset classes and geographies A globally diversified index fund provides exposure to thousands of companies across dozens of countries. This reduces the risk of any single company or sector devastating your returns.

3. Keep investment costs low A fund with a 1.5% annual charge will cost you significantly more over 20 years than one with a 0.2% annual charge. For straightforward index investing, low-cost index funds (often called tracker funds) are widely regarded as a sensible default.

4. Match risk to your timeline and goals If you are investing for a house purchase in three years, a high-equity portfolio is inappropriate — markets can fall significantly over a three-year period. Longer timeframes (10+ years) can absorb more volatility.

What About Property?

Buy-to-let property can generate rental income and capital growth, but it comes with significant complexity and ongoing responsibilities:

Property remains a legitimate investment, but the tax treatment has become significantly less favourable over the past decade. It is not automatically the best use of an inheritance.

Step 8: Consider the Tax Picture

Capital Gains Tax on Inherited Assets

When you inherit assets (property, shares, etc.), your CGT base cost is reset to their value on the date of death. This means any growth that occurred during the deceased’s lifetime is wiped out for CGT purposes — you only pay CGT on gains from the inheritance date onwards.

Example: You inherit shares worth £50,000 at the date of death. When you sell them five years later for £70,000, you pay CGT only on the £20,000 gain above your annual exempt amount (£3,000 in 2026/27). Net gain subject to CGT: £17,000.

You can minimise CGT by selling assets over multiple tax years to use your annual exempt amount each year.

Income Tax on Inherited Income-Producing Assets

If you inherit a rental property or a savings account, any income generated after the inheritance date is taxable as your income. Factor this into your financial planning — a large rental income could push you into a higher tax bracket.

Step 9: When to Take Financial Advice

For most people receiving a modest inheritance, common sense financial steps (clear debt, ISA, pension) are sufficient and do not require paying for regulated advice.

Consider taking regulated financial advice if:

• Your inheritance is over £50,000
• It includes complex assets (business interests, overseas property, a pension in drawdown)
• You are close to or in retirement and the money will materially change your income plan
• You are concerned about your own IHT position

A regulated independent financial adviser (IFA) must act in your best interests. Check their FCA registration at the FCA register (register.fca.org.uk). Expect to pay £150–£300 per hour or a percentage fee for investment advice.

Unregulated advice — from friends, family, or social media — is not covered by the Financial Ombudsman Service if it goes wrong.

Summary: Your Inheritance Checklist

For further reading on building long-term wealth, see our Investing for Beginners hub and our guide to ISA types explained.