You've Inherited Money. Here's What Not to Do First

There’s no prize for deciding quickly. Many advisers suggest giving yourself at least six months before making any big moves. Use that time to grieve, get the paperwork sorted and work out what you actually want.
In the meantime, just park the money somewhere safe and easy to reach, such as an easy-access savings account.

Little-known nugget: normally, savings are protected up to £120,000 per person, per banking group, if your bank goes bust. But if your balance is unusually high because of an inheritance, it can be protected up to £1.4 million for six months. That’s called a temporary high balance, and it gives you breathing space to decide what to do without worrying about spreading the money across lots of banks straight away.

After six months, the normal £120,000 limit applies again, so it’s worth having a plan by then.

If you’ve been told you’re inheriting money, it’s tempting to start planning. But until the estate has been sorted out, the money isn’t really yours yet.

The executors (the people named in the will to deal with the estate) usually need to get probate first, pay any debts, and pay any inheritance tax that’s due.

Only then can they share out what’s left. That can take anywhere from a few months to well over a year.
The good news is that in most cases you won’t personally pay inheritance tax on what you receive. It’s paid out of the estate before it reaches you.

Little-known nugget: if you’re an executor as well as a beneficiary, check whether the person who died had any old workplace or personal pensions they’d lost track of.

There are millions of forgotten pension pots in the UK, and they can be paid out to the people they were meant for. Our free pension tracing service can help.

Inheriting shares or funds can feel daunting, especially if they weren’t the kind of thing you’d ever have picked yourself.

Plenty of people sell quickly just to make the decision go away. Investment platform Hargreaves Lansdown found around one in seven people who inherit an ISA make their first trade within two weeks.
Selling isn’t always wrong, but do it because it fits your plan, not because the investments feel unfamiliar.

Little-known nugget: the tax slate is wiped clean. When you inherit investments, any growth that built up during the person’s lifetime is free of capital gains tax. For tax purposes, it’s as if you bought them on the day they died, at that day’s value. So you’ll only pay capital gains tax on any rise from that point on.

Little-known nugget: inherited ISA allowance. If your husband, wife or civil partner has died, you can get an extra one-off ISA allowance equal to the value of their ISAs. It’s called an Additional Permitted Subscription. If their ISAs were worth £50,000, you could put £50,000 into your own ISA on top of your usual £20,000 allowance. You get this extra allowance even if they left the ISA itself to someone else. You usually have at least three years from the date of death to use it.

If you’ve been left someone’s pension pot, you often don’t have to take it as a lump sum.

You can usually leave it invested and take money out as and when you need it.

How it’s taxed depends on how old the person was when they died:

That second row is where people trip up. Take a big lump sum from an inherited pension in one tax year and it’s added to your salary, which could push you into a higher tax band, or even the 45% band. Spreading withdrawals over several tax years can cut the tax bill dramatically.
There’s a change coming too. From 6 April 2027, most unused pension money will also count towards the estate for inheritance tax.

If you’re dealing with an estate around then, it’s worth getting proper advice on the timing.

An inheritance is often the biggest sum of money someone has ever handled. It’s worth getting it right, and there’s no shame in asking for help. A good adviser can help you think through your options, from where to put the money to whether a deed of variation makes sense for your family.

When you’re ready, book a free, no-obligation chat with one of our advisers.

No pressure, just a clearer picture of what you could do next.

This guide is for education only and isn’t financial, tax or legal advice.

Everyone’s situation is different, so speak to a regulated financial adviser or solicitor before making decisions. Tax rules can change and depend on your circumstances.

Investments can go down as well as up.

Sources

Temporary high balances, FSCS
Deposit protection limit increase, FSCS
Inherited ISAs boom, up 68% in 2 years, Financial Planning Today
How to manage additional permitted subscriptions into an ISA, GOV.UK
Inheritance Tax on unused pension funds and death benefits, GOV.UK