Posted in:

What to do with inheritance in the UK: Inheritance Planning

Inheritance can come as a blessing, but it’s also a big responsibility. Whether it’s as tiny as a £10,000 investment or as significant as £200,000, inherited money can completely change a person’s life. Therefore, you should know how to manage it responsibly to take full advantage of the opportunity.

Inheritance money, if used judiciously, can help in starting a new career, completing education, buying a new house, planning for retirement, or saving for unexpected contingencies. However, if inheritance planning is not managed well, the inheritance will not last as long as many people assume it might. Therefore, the use of inheritance should be well-planned and handled with care.

Do I need a big inheritance to invest?No, you can start even with a small amount
First thing to do with an inheritancePay off any debt
Save it or invest itInvest it
Most important thing to do?Plan how to use it

What to do with inheritance in the UK

You may be wondering what to do with inheritance when you first get it, as it may feel like lifelong financial security. However, inheritance planning needs to be managed carefully for its benefits to continue in the long term. Therefore, people who receive an inheritance should consider their financial situation and use their inheritance appropriately.

Pay off high-interest debts

As much as you might be tempted to make a grand purchase with your inheritance, the most judicious first step with inheritance planning is to pay off any high-interest debts. Take stock of your financial situation, including any loans, mortgages, and credit card payments, and pay them off.

The priority of payments should be directly proportionate to the interest rate you are paying, and you should pay off the debts in the same order. For instance, credit card bills are usually more expensive and attract a much higher interest rate than mortgages. Therefore, inheritance should first be used to pay off credit card bills and personal loans before moving to low-interest rate mortgages.

This way, you can save on heavy monthly interest payments and better manage your finances. It’s advisable to pay off debts rather than save, after weighing the interest rates on loans against the returns on savings accounts.

Save or invest

After paying off debts, the next logical step to inheritance planning is to save some of the inheritance money while investing the rest for the future. Instead of giving in to the temptation of spending all of the inheritance on luxuries, saving and investing in ways that can help the money grow is strongly advisable.

You can keep a significant part of your inheritance money for rainy days in savings accounts. An efficient way of saving is to put your inheritance money into an ISA, up to the annual ISA allowance of £20,000 for the financial year. These savings can be in the form of cash ISA, stocks and shares ISA, or a mixture of different types of ISAs.

You can also invest the inheritance money for long-term gains. You can invest it in various financial instruments, including stocks, bonds, foreign exchange, commodities, or real estate. Investing your money and having a solid investment strategy put you in the position to receive steady returns in the future in the form of dividends, interest payments, or rent, for example. Moreover, you can reduce the risks through diversification across various securities, industries, and geographies.

Invest in a pension

A pension is an excellent vehicle for returns and tax benefits. Any inheritance invested into a pension fund can act as a safety net post-retirement, with 25% able to be withdrawn as a tax-free lump sum.

Moreover, the inheritance money invested in a pension fund can also be passed on to heirs and beneficiaries without losing any tax implications as it would not be subject to inheritance taxes. Overall, putting the inheritance money into a retirement account is an efficient way to save the money for a solid future.


Many people also consider donating a portion of their inheritance money to charity. It is a great way to pass on the benefits of inheritance received from someone close to the less privileged people in society. The inheritance then becomes not only a gift to you but also a means for others to benefit.

Keep some for personal enjoyment

If you have inherited a large sum of money, you’re well within your rights to spend some guilt-free cash on personal luxuries. However, it’s essential to first take care of the liabilities, savings, investments, and future before indulging yourself.

Then, you can use any remaining inheritance money after careful financial planning for a holiday, luxury purchases, home renovations, or anything that makes you happy. Your inheritance planning doesn’t have to entail penny-pinching.

Emotional Aspects of Dealing with inheritance

Inheritance often brings a complex mix of emotions, ranging from gratitude and excitement to guilt and anxiety. The sudden responsibility to manage a substantial sum of money can be overwhelming, especially when it comes from a loved one who has passed away. The pressure to make the right decisions, coupled with the desire to honour the intentions of the deceased, can create a unique emotional landscape.

Investing your inheritance wisely becomes a mantra, but the path to doing so may be fraught with emotional hurdles. It’s not just about financial gain; it’s about respecting a legacy, understanding family dynamics, and navigating personal values and goals. Balancing these emotional factors with practical financial planning is essential to make the most of an inheritance, ensuring that it serves as a positive force in one’s life rather than a source of stress or conflict.

Tips for investing your inheritance

As discussed, inheritance can turn out to be a huge boon if used sensibly. Unfortunately, many people end up squandering away their inherited wealth when they receive it, and many live to regret it later. Therefore, the most critical aspect of managing inheritance is meticulous financial planning.

The wisest course of action is to hire a financial planner or financial advisor to help manage your inheritance. An independent financial advisor will have an unbiased opinion about your financial status and offer you much-needed guidance and financial advice.

A financial advisor can also assist you in determining the suitable avenues for the investment of the inheritance, depending upon your risk tolerance, age, short-term and long-term obligations, and current financial status.

If you do not want to hire a financial advisor for your inheritance planning, several financial institutions offer tailored financial services based on your investor profile. This investor profile will match you with an investment portfolio that suits your risk profile.

It is critical to take your time to spend your inheritance money and not make rash financial decisions. It’s natural to be tempted to quit your job as soon as you receive £100,000 in inheritance or use the inheritance money to buy your dream car. However, it’s key to pause, reflect, and make sound financial decisions by learning how to invest £100,000.

To do this, you may want to keep the inheritance in a secure bank account for some time while you ponder over what to do with it rather than frittering it away. After you’ve taken an extensive account of your financial standings, the money can be withdrawn and put to use. You should take your time and understand the process and the consequences before making any snappy choices.

Please note that any unclaimed inheritance is passed to the Crown, whether it be real estate, money or personal possessions. To claim an unclaimed inheritance without a valid will, you must check if the estate is listed with the Crown and find out if you are the entitled relative. If you are an entitled relative, you must claim with the appropriate bodies representing the Crown. Depending on proof and documentation, relatives have 12 to 30 years to claim an inheritance.

The bottom line is that inheritance can bring dramatic change to the receiver’s life. If managed effectively, it can end years of financial hardship and pave the way for years of financial security. Therefore, one should make a serious financial plan upon receiving an inheritance. 

The inheritance money can be used to overcome financial liabilities, save and invest the money for the future, plan a comfortable retirement, create a stable financial future for coming generations, and improve the quality of your life. It’s important to spend any inheritance sensibly and follow due considerations in deciding what to do with inherited wealth.


What to do with £10,000 inheritance?

First, reduce any debt payments. You can put the rest of the money in a high-interest savings account as an emergency fund, spend the money or invest it in tax-free accounts.

What to do with £20,000 inheritance?

The options for a £10,000 inheritance also apply to a £20,000 inheritance. However, you can combine the three options. Whatever you decide, ensure you make the best choice for you.

What do I do with inherited money in the UK?

First, pay off any debts. After paying off any debts, you can invest or save, give to charity, invest in a pension and spend it on yourself.

Did you find this content interesting?

You already voted!

*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.