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How to invest your inheritance

Inheritance can come as a blessing, but it’s also a big responsibility. Inherited money, whether it’s as small as £10,000 or as significant as £200,000, can change a person’s life completely. Therefore, you should know how to manage it responsibly to fully take 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 not managed well, inheritance does not last as long as many people assume it might. Therefore, the use of inheritance should be well planned and handled with care.

What to do with inheritance in the UK

When you first get your inheritance, it may feel like lifelong financial security. However, inheritance needs to be managed carefully for its benefits to continue in the long term. Anyone who receives 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 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 the debts should be paid off in the same order. For instance, credit card bills are usually more expensive and attract a much higher rate of interest than mortgages. Therefore, inheritance should first be used to pay off credit card bills and personal loans, before moving on to the low-interest rate mortgages. This way, you save on heavy monthly interest payments and can better manage your finances. The decision to pay off debts rather than saving should be made after comparing the interest rates being paid on loans and the interest earned on savings accounts and deciding accordingly.

Save or invest

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

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, stocks and shares, 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 properties. These investments put you in the position to receive steady returns in the future in the form of dividends, interest payments, or rent, for example. The risks can be reduced through diversification across a variety of securities, industries, and geographies.


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Invest in a pension

A pension is an excellent vehicle for returns and for 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 in tax implications. 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. You can use any remaining inheritance money after careful financial planning for a holiday, luxury purchases, home renovations, or anything that makes you happy.

Tips for investing your inheritance

As discussed, inheritance can turn out to be a huge boon if used sensibly. However, 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 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 advice. A financial advisor can also assist you in determining the suitable avenues for investment of the inheritance, depending upon your risk tolerance, age, short-term and long-term obligations, and current financial status.

It is critical to take your time spending your inheritance money and not make rash decisions. It’s natural to be tempted to quit your job as soon as you receive £300,000 in inheritance, or to use the inheritance money to buy your dream car. However, it’s key to pause, reflect, and make sound financial decisions. 

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.

The bottom line is that inheritance can bring dramatic change to the life of the receiver. It can end years of financial hardship and pave the way for years of financial security if managed effectively. Therefore, one should undertake serious financial planning upon receiving an inheritance. The inheritance money can be used to overcome the financial liabilities, save and invest 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 inherited wealth.

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