Billions of pounds will change hands over the next 20 years as the baby boomer generation passes wealth down to their children and grandchildren. Most people on the receiving end won’t have ever dealt with a lump sum like that before. And it almost always lands at the worst time, when you’re grieving and your head is anywhere but on finances.
You’ll either want to sort everything out immediately or shove it all to one side and deal with it later. Both of those instincts can end up costing you real money, so it helps to know what genuinely can’t wait and what you’re better off sitting on for a while.
The Clock Is Already Ticking on Tax
HMRC expects inheritance tax (IHT) to be paid within six months of the date of death. That deadline won’t bend just because probate hasn’t come through yet or because you haven’t received anything from the estate. If the estate’s value sits above the nil-rate band (£325,000 at the moment, or up to £500,000 if the residence nil-rate band applies), tax will be owed. That £325,000 threshold has been frozen since 2009 and won’t change until at least April 2031, which means rising house prices are pulling more estates above it every year.
Usually, the executor sorts out IHT before anyone sees a distribution. But if you’re the executor, that responsibility falls on you, and you’ll need to move quickly. Interest starts building after six months. HMRC won’t hold off on chasing you because you’re still processing things emotionally.
Don’t Rush the Big Decisions
Once the money actually hits your account, you’ll want to act. Pay off the mortgage. Put it into a pension. Invest it. Hand some to the kids.
Any of those could turn out to be the right call. But not one of them needs to happen in week one, or even month one. People make their worst financial decisions when they’re grieving, and the choices that get made under that kind of pressure tend to be the ones they look back on with regret.
A lump sum like this doesn’t sit on its own, either. It touches your pension, your ISA allowances, your mortgage, your tax position, and whatever plans you already had before this money showed up. That’s why most people who inherit a significant amount end up working with financial planners before committing to anything, because each decision affects the others in ways that aren’t obvious at first glance. In the meantime, putting the money into a decent savings account and giving yourself breathing room is a completely reasonable short-term move.
Just don’t leave it parked in a current account earning almost nothing for a whole year. Inflation will quietly eat into the value while you’re distracted with everything else going on.
What Changes Once the Money Lands
An inheritance you didn’t expect can shift your tax position in ways most people don’t anticipate. It might bump you into a higher income tax bracket, affect child benefit eligibility, or push your estate closer to its own IHT threshold down the line. These aren’t immediate emergencies, but they’re the kind of things that cost real money if nobody catches them within the first year or two.
It’s also worth checking whether the assets you’ve inherited come with their own obligations. A property needs maintaining, insuring and eventually selling or transferring. An investment portfolio might be sitting in a wrapper that doesn’t suit your tax position. Even cash in a bank account above the FSCS protection limit carries a risk most people don’t think about. Knowing what you’ve actually received and what each part demands from you is the first step before making any decisions about what to keep, sell or restructure.
The Biggest Risk Is Moving Too Fast
Nobody expects you to know exactly what to do with an inheritance you didn’t plan for. Most people don’t. And the emotional weight of it makes everything harder, because this isn’t money you earned or saved. It arrived because someone you cared about died, and that colours every decision you try to make with it.
Give yourself permission to move slowly. Handle the tax deadline because HMRC won’t wait, park the rest somewhere sensible, and then take a few months before you commit to anything permanent. The people who end up regretting how they handled an inheritance are almost never the ones who took too long to act. They’re the ones who moved too fast and locked themselves into something they couldn’t easily undo.
Please note: The value of investments and any income they produce can fall as well as rise. There’s no guarantee you’ll get back the full amount you put in, and past performance isn’t a reliable indicator of what might happen in the future.
