What Should You Do With an Inheritance? 

When someone in your family dies, it’s often an extremely hard time. Although money doesn’t make up for the fact that they’re not with you anymore, it does help to cushion you in lots of ways. The most important thing is to make sure you take your time, and not to make any quick decisions before weighing up your options, particularly if emotions are running high.

While some people may be tempted to spend it on a holiday, a car, or a wedding, it’s best to do some research and work out the best way to spend the money that’s been gifted to you. I always think that a gift like this deserves to be honoured by turning it into something more – like a new, fulfilling career, a business venture, or a nest-egg for the future.

What to do with an Inheritance (UK)

Short on time? Before we delve deep into the options you could look at, here’s a quick glance into some different ways you might want to spend an inheritance.

  1. Put it into an emergency fund 
  2. Pay off existing debt
  3. Invest in stocks and shares
  4. Save into a high interest savings account
  5. Keep as a deposit for a house
  6. Use it for mortgage overpayments
  7. Make some home improvements
  8. Invest in your education
  9. Gift some money to charity
  10. Keep 10% back for fun

Some of these require a lot of thought and a fair amount of research, so it may be worth speaking to a financial advisor to work out when your best option might be. Read on to find out more about each of these. 

Money Mindset – Mind Over Money

“Mind over Money” author Claudia Hammond explores how money that’s been gifted often takes a lower level of respect in our minds than money we’ve earned. She discusses how we can have a tendency to compartmentalise it – to treat it as a separate entity from our usual income, and view it differently. 

This can bring up all sorts of excuses, such as, “Well, she would have wanted me to buy x, y, z with the money,” or “she would have wanted me to have fun”. It’s human nature, and it’s the way our minds work. 

But right now, it’s essential to be aware of any temptation you have to spend “free” money without a plan.

Now that we’ve got money mindset out of the way, let’s delve deeper into 8 ways you can use your inheritance to build long-term wealth, and 2 bonus suggestions at the end. 

Investing Your Inheritance – What Can You Invest in? 

The secret to wealth is not just spending less and earning more. To really get a good amount of money for retirement, you’ll need to start investing it. Gaining an inheritance is a perfect opportunity to start working on this.

Stocks and shares, property, bonds and gold are all possible options to get started, and they work well together to keep your portfolio well diversified. Start doing your due-diligence, and research how to get into these market in a safe and sustainable way.

Admittedly, investing can be a scary word, and many of us have no clue where to start. Here’s an overview of different things you can invest in, including a completely free resource for beginners to get you started.  

Stocks and Shares

A company that is listed on the stock exchange is able to offer shares in their company for people to purchase. These prices can go up and down depending on how well the company is performing, or what the market deems their shares to be worth. Investing in individual stocks and shares can be quite time-consuming and requires a decent understanding of how the stock market works. 


Investment funds can offer a potentially way into investing in stocks and shares. Funds are a collection of different assets, and are often managed by a fund manager. The fund manager will decide which funds should stay or go within a collection, to ensure the best performance. There are various different ways you can get started with investment funds, with lots of apps organising these funds based on an algorithm, rather than relying on a fund manager to make the decisions. Take a look at our post on the Top 10 Best Investment Apps in the UK for more information. 


Premium bonds are a type of investment product offered by National Savings & Investments NS&I), where you can invest up to £50,000. Unlike other investment products, you won’t earn interest or dividends, but you are entered into a monthly prize draw to win prizes of between £25 and £1,000,000, tax-free. You can read more about premium bonds on the Money Helper website


We all expect a state pension when we retire, but it is likely that the amount we receive will not be enough to cover our desired lifestyle. If you don’t yet have a private pension, it might be time to put some money down and start contributing. Your pension investments give you a tax rebate in some cases, and can grow at a much higher rate than a savings account. This free E-Book lists out your options in the UK and comes as part of a bundle to help you to learn about investing.

8 Other Smart Ways to Spend Your Inheritance

While investing is a smart choice when it comes to knowing what to do with an inheritance, there are other options you may want to consider, which we’ll dive into below. 

Put it in Emergency Fund

One of the things that kill off wealth faster than anything is an unexpected emergency. I am a firm believer in the benefits of an emergency fund (which has covered my butt plenty of times). Start with £1000 in a basic savings account, then add in 3-6 months worth of basic living expenses. In the event of you getting ill, needing to quit work early for whatever reason, or taking sick leave, you know you have money stored away to cover you. This takes the pressure off, and plugs the gap until you return to work, or pension benefits kick in.

Pay off Existing Debt

Paying off your credit card debt might be your first priority after receiving a large sum of money. This will free up some of your monthly income to start putting into investments, such as index trackers, and will do wonders to improve your net worth. You will also save yourself a lot of money by avoiding paying interest to your credit card company for years to come. Credit card fees and interest are generally the most expensive among all debt, so it makes sense to get rid of them first. If you have personal loans as well, pay them off next.

Use as a House Deposit

If you’re still in your 20s and 30s can stretch to buying your first home, buying property is an excellent platform to start building wealth. A lump sum from a relative could be the leg up you need, and could make all the difference in the amount of money you end up borrowing.

Mortgage Overpayments

If you took out a mortgage for 20-30 years, chances are you will end up paying back 1.5-2.5 times the value of your house over time. If you can make extra payments without a penalty, you can reduce the term of the mortgage and the overall interest paid over the term. This is useful if you are approaching retirement, because having to still pay off a mortgage after you stop working will be a massive headache. If you have nothing to pay on your mortgage at the point of your retirement, this will definitely help your pension money stretch further!

Make Some Home Improvements

Investing in your home can increase the value of your property, but it has to be sensible! There’s no point in doing something (like putting in a hot-tub) if it does not improve the value of your property. Talking with a local estate agent might be helpful in this case. They can also help with working out the potential value of your home, especially if this is something you want to start tracking to work out your net worth.

Possible upgrades could include solar panel installation, heating and ventilation system improvements, and new plumbing and electricity. Just make sure that you focus on home improvements that give you the greatest return on investment.

Then you might want to think about how you are going to pass this asset on. Talk to probate solicitors for advice. They can go through your options and help you make a will if you don’t already have one.

Invest in Education

You will need to focus on long term investments that will increase your income over time. If you have been dreaming about a career change for a long time, it might be time to get back into learning again. You could get an extra qualification, a better job, and a higher salary, and this will benefit you for many more years that a trip abroad will. Take the inheritance as an opportunity for wealth building and personal development. Something I’m sure your loved one will be proud of.

An unexpected inheritance can help you achieve financial freedom, improve your life, and become debt free. Use the lump sum wisely, and you can make your money go further for many years to come.

Make a Donation to Charity

Being wealthy offers the fantastic opportunity to do some good in the world. With so much suffering from war, climate change, the cost of living crisis, being able to donate just a little amount of your inheritance to a charity can go a long way in making a difference. Perhaps you want to help the poor, or help to look after animals. 

There are so many opportunities out there to help drive a change for good. Visit https://www.globalgiving.org/ for some ideas on projects around the world that you might want to get involved in. 

Keep 10% Back for Fun 

Ok, so everything above is very sensible and necessary if you want a decent retirement, and financial security. However, human nature dictates that we will want to do something fun with a big lump sum. This is fine to do, as long as its in a controlled way. Why not limit it to just 10%, and use the rest on one or more of the above points. You’re not allowed to spend it all on fun, but I think 10% for something you want like a car, or a holiday will give you the incentive to look after the other 90% properly.

Where Do You Store Your Inheritance Money? 

It might be an obvious question, but it’s one that you want to consider carefully and the answer will depend on how you choose to spend your inheritance. If you know you will need to access it sooner rather than later, it makes sense to store it in an easy-access savings account. 

High Interest Savings Accounts

However, it’s a good idea to store it in an easy-access savings account with the best interest rate you can get. Make sure you shop around to find the best one for you. Some will require you to keep the money in the account for a minimum term, whereas others will allow you instant access. The interest rate is usually relative; i.e. you’ll get a better interest rate the longer you leave it in there. To see which savings accounts currently offer the best interest rates and term to suit your needs, check out this post on Top Savings Accounts from Money Saving Expert. 

Do I have to inform HMRC if I inherit money? 

When a person dies, the executor of the will has to fill out a form for HMRC before probate is granted. This outlines the value of the person’s estate for the purpose of inheritance tax. Inheritance tax must be paid if the value of the estate is more than £325,000 (for tax year 2022/2023, up to 2026), at which point it is subject to a rate of 40% tax. 

What to do with Inheritance Money to Avoid Taxes

There are a number of things that a person can do to avoid an inheritance tax when passing on wealth after they have died. As mentioned above, if the value of the estate is less than £325,000 then no inheritance tax will need to be paid. This threshold can actually be higher depending on your circumstances, such as if you inherit your parent’s home, for example.

There are steps that the person can put in place before they die. Things like putting money into trust for children for them to access when they’re 18, enjoying their income and spending it on things like holidays, or giving up to £3,000 away as gifts. Provided these gifts are given more than 7 years before the person dies, they will not be subject to inheritance tax. The Telegraph has an interesting article on legal loopholes to avoid paying inheritance tax, which you can view here

The Bottom Line

Inheritance money is there is be spent wisely, not squandered. Get the balance right, and you’ll set yourself up properly for life. There is a wealth of conflicting information out there, so take your time, plan properly, and you’ll be ok. After all, this is all your loved one wanted for you right?





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