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Inheriting money for the first time can feel overwhelming — especially while grieving. Whether you’ve inherited £5,000 or £500,000, this guide explains what happens after someone dies, how inheritance works, and what to do with the money wisely.
Understanding the Basics
What is an Inheritance?
An inheritance is money, property, or possessions left to you by someone who has died. They may have specified you in their will, or if there’s no will, you may inherit through the rules of intestacy (legal rules about who inherits when there’s no will).
Key Terms
| Term | Meaning |
|---|---|
| Will | Legal document stating who inherits what |
| Intestacy | Dying without a valid will |
| Estate | Everything the deceased owned (money, property, possessions) |
| Executor | Person responsible for carrying out the will’s instructions |
| Administrator | Person managing an intestate estate |
| Probate | Legal process to confirm the executor can deal with the estate |
| Grant of Representation | Legal document giving authority to deal with the estate |
| Beneficiary | Person who inherits something (you, in this case) |
What Happens After Someone Dies?
The Probate Process
- Immediate steps — Register death, arrange funeral
- Locate the will — Find and read the will to identify executors
- Value the estate — List all assets and debts
- Apply for probate — Executors apply for legal authority (4-8 weeks)
- Pay debts and taxes — Including Inheritance Tax if applicable
- Distribute the estate — Pay out to beneficiaries
- Final accounts — Executor completes estate accounts
Timeline: Simple estates may complete in 6-12 months. Complex estates can take 1-2+ years.
Do All Estates Need Probate?
Not always. Probate isn’t required if:
- The estate is small (typically under £5,000-10,000)
- Assets were jointly owned and pass automatically to survivor
- Assets were held in trust
- Assets were nominated (e.g., some pensions)
If There’s No Will (Intestacy)
The estate is distributed according to legal rules:
| Relationship to deceased | What they inherit |
|---|---|
| Spouse/civil partner (no children) | Everything |
| Spouse + children | First £322,000 + half remainder (children split other half) |
| Children (no spouse) | Everything shared equally |
| Parents (no spouse/children) | Everything shared equally |
| Siblings (no spouse/children/parents) | Everything shared equally |
Unmarried partners receive nothing under intestacy rules unless named on joint accounts/property.
Inheritance Tax: Do You Pay?
The Good News
As a beneficiary, you typically pay nothing. Inheritance Tax (IHT) is paid by the estate before you receive your inheritance. The executor handles this.
When Inheritance Tax is Due
IHT may be charged on estates worth over £325,000 (the nil-rate band):
- 0% on first £325,000
- 40% on everything above
Additional allowance: If a home is left to direct descendants (children, grandchildren), an additional £175,000 allowance applies, giving a potential threshold of £500,000 (or £1 million for couples).
Example: Estate Worth £600,000
| Component | Amount |
|---|---|
| Estate value | £600,000 |
| Nil-rate band | -£325,000 |
| Residence nil-rate band (home to children) | -£175,000 |
| Taxable estate | £100,000 |
| IHT at 40% | £40,000 |
| Available to beneficiaries | £560,000 |
What About Tax on Your Inheritance?
Once you’ve received inheritance, there’s no further “inheritance tax” to pay. However:
| Situation | Potential tax |
|---|---|
| Investment grows and you sell | Capital Gains Tax on growth |
| Inherited property grows and you sell | Capital Gains Tax (unless it’s your main home) |
| Inherited pension and you withdraw | Income Tax on withdrawals |
| Inherited ISA | None on ISA proceeds |
| Bank interest on inheritance | Income Tax if over allowances |
Receiving Your Inheritance
How You’ll Be Notified
The executor will:
- Contact you to confirm you’re named in the will
- Explain what you’re inheriting
- Ask for bank details or instructions
- Transfer money or arrange asset transfer once estate is settled
Types of Inheritance
| Type | How it works |
|---|---|
| Cash/money | Transferred to your bank account |
| Property | Ownership transferred (you decide to keep/sell) |
| Shares/investments | Transferred to you or sold |
| Personal items | Collected or delivered |
| Pension | Depends on pension type (may be lump sum or regular payments) |
If You Inherit Property
You have options:
- Keep it — Live in it or rent it out
- Sell it — Receive cash (capital gains may apply)
- Share with other beneficiaries — Common when siblings inherit together
Important: If you sell, you may owe Capital Gains Tax on any increase in value since the death (not since original purchase).
What To Do With Your Inheritance
Don’t Rush
The most important advice: take your time. Put the money somewhere safe while you decide:
- Premium Bonds (safe, some interest)
- High-interest savings account
- Easy access ISA
Give yourself at least 3-6 months before major decisions.
Step 1: Pay Off High-Interest Debt
This is almost always the best first use:
| Debt type | Typical APR | Priority |
|---|---|---|
| Credit cards | 20-30% | High — pay off first |
| Store cards | 25-35% | High — pay off first |
| Overdrafts | 35-40% | High — pay off first |
| Personal loans | 5-15% | Medium — consider paying |
| Car finance | 5-10% | Medium — depends on rate |
| Mortgage | 4-6% | Low — usually keep paying normally |
| Student loans | Plan 2: 7.9% | Low — often not worth repaying early |
Rule of thumb: If the debt interest rate is higher than what you could earn investing, pay it off.
Step 2: Build an Emergency Fund
If you don’t have 3-6 months of expenses saved:
- Put aside enough to cover emergencies
- Keep it in an easy-access account
- This provides security and reduces stress
Step 3: Consider Your Goals
| Goal | Options |
|---|---|
| Home deposit | Put toward house purchase (combine with LISA if eligible) |
| Home improvements | Renovations, extensions, energy efficiency |
| Pension | Top up retirement savings (tax relief available) |
| Children’s future | Junior ISAs, savings accounts |
| Investments | Stocks & shares ISAs, general investment accounts |
| Education | Your own or children’s education/training |
| Pay off mortgage | Reduce term or overpayments |
| Help family | Gifts to children, grandchildren (consider IHT implications) |
| Charity | Donations to causes meaningful to you |
| Experiences | Travel, hobbies (nothing wrong with enjoying some) |
Step 4: Think About Tax Efficiency
| Account type | Tax benefit | Limit (2026/27) |
|---|---|---|
| ISA | Tax-free growth and income | £20,000/year |
| LISA | 25% government bonus (first home/retirement) | £4,000/year (counts toward ISA) |
| Pension | Tax relief on contributions | £60,000/year (or 100% of earnings) |
| Junior ISA | Tax-free for children | £9,000/year |
| Premium Bonds | Tax-free prizes | £50,000 maximum holding |
Step 5: Seek Advice for Larger Sums
If you’ve inherited over £50,000, consider consulting a financial adviser. They can help with:
- Tax planning
- Investment strategy
- Estate planning (including your own will)
- Pension planning
Look for advisers registered with the FCA. Many offer a free initial consultation.
Inheritance and Benefits
Means-Tested Benefits
An inheritance can affect:
- Universal Credit
- Housing Benefit
- Council Tax Reduction
- Pension Credit
- Income-based ESA/JSA
Universal Credit rules:
- Savings £6,001-16,000: Reduced UC (assumed income of £4.35/month per £250)
- Savings over £16,000: Usually no UC
What You Must Do
- Report the inheritance to DWP within 14 days
- If you’re on UC, report through your journal
- Deliberately spending inheritance to stay on benefits is fraud (“deprivation of capital”)
Non-Means-Tested Benefits
These are not affected by inheritance:
- State Pension
- PIP/DLA
- Contribution-based ESA/JSA
- Child Benefit
Planning Around Benefits
If you’re on benefits, you might:
- Pay off debts (reduces capital)
- Buy essential items (furniture, car if needed)
- Make reasonable pension contributions
- Pay for vocational training
Get advice: If benefits are significant to you, consult Citizens Advice before doing anything.
Inheriting a Pension
What Happens Depends on the Pension Type
| Pension type | What you receive |
|---|---|
| Defined contribution (pot of money) | Lump sum or drawdown |
| Defined benefit (final salary) | Usually spouse’s pension (reduced rate) |
| State Pension | No inheritance (stops at death) |
Tax on Inherited Pensions
| Deceased’s age at death | Under 75 | 75 or over |
|---|---|---|
| Lump sum withdrawal | Tax-free | Income tax at your rate |
| Drawdown (regular income) | Tax-free | Income tax at your rate |
Key point: If the person died before 75, inherited pension withdrawals are tax-free, making this a valuable inheritance.
Your Options
If you inherit a pension pot:
- Leave it invested — continued tax-free growth
- Take lump sums as needed — flexible access
- Buy an annuity — guaranteed income for life
- Drawdown — regular income while pot stays invested
Consider: a beneficiary’s pension doesn’t count toward your own pension allowances.
Disclaiming an Inheritance
You can refuse (“disclaim”) an inheritance if you:
- Don’t want the complexity
- Want it to pass to someone else instead
- Are concerned about benefits implications
Important:
- You must disclaim within 2 years of death
- You can’t pick and choose what to disclaim
- You can’t direct where it goes instead (it follows the will/intestacy rules)
Common Mistakes to Avoid
Mistake 1: Spending Too Quickly
Many people regret hasty decisions. Wait at least 3-6 months before major purchases.
Mistake 2: Telling Everyone
Be cautious about sharing details. Unfortunately, sudden wealth can attract:
- Scammers
- “Friends” seeking loans
- Family disagreements
- Pressure to make gifts
Mistake 3: Making Big Life Changes Immediately
Avoid major decisions while grieving:
- Don’t quit your job immediately
- Don’t buy a new house impulsively
- Don’t make relationship decisions based on money
Mistake 4: Ignoring Tax Implications
Understand potential Capital Gains Tax on properties and investments, and Income Tax on pension withdrawals.
Mistake 5: Not Making Your Own Will
Inheritance is a reminder of mortality. Update or create your own will, especially if you have dependents.
Mistake 6: Not Telling DWP About Benefits
Failing to report inheritance when on means-tested benefits can lead to:
- Overpayment recovery
- Penalties
- Potential fraud investigation
Mistake 7: Leaving Money in Low-Interest Accounts
Once you’ve decided to save/invest, move money to:
- Best buy savings accounts
- ISAs
- Investments (if appropriate)
Don’t leave large sums in a current account earning nothing.
Getting Help
Financial Advisers
For larger inheritances, consider a qualified adviser:
- Check they’re FCA authorised: register.fca.org.uk
- Look for Chartered Financial Planners
- Understand their fees (hourly, percentage, or flat fee)
- Many offer free initial consultations
Solicitors
If the estate is complex or you have disputes:
- Find a solicitor specialising in probate/inheritance
- Get quotes from multiple firms
- Consider fixed-fee services for simple matters
Bereavement Support
Dealing with money during grief is hard. Support includes:
- Cruse Bereavement Support: cruse.org.uk
- Mind: mind.org.uk
- Your GP for counselling referrals
Citizens Advice
Free help with:
- Benefits implications
- Understanding your rights
- Debt issues
Key Takeaways
- Don’t rush — Put inheritance in savings while you decide
- Inheritance Tax is usually paid by the estate — Not by you
- Pay off high-interest debt first — Often the best use
- Build an emergency fund — If you don’t have one
- Report to DWP if you’re on means-tested benefits — Within 14 days
- Consider tax-efficient accounts — ISAs, pensions, LISAs
- Get advice for larger sums — Financial advisers can help
- Update your own will — Especially if you have dependents
- Allow yourself to grieve — Money decisions can wait
This guide provides general information about inheritance in England and Wales. Scotland and Northern Ireland have different inheritance laws. For personal advice, consider consulting a qualified financial adviser or solicitor.