What Should I Do With an Inheritance? Your Options Explained

In most cases, as the person receiving an inheritance, you do not pay tax on the money or assets you inherit. Inheritance tax (IHT) — where it is due — is paid by the deceased's estate before assets are distributed. By the time the money reaches you, any IHT liability has typically already been settled.

There are some important exceptions to be aware of:

If you inherit a pension from someone who died aged 75 or over, you will pay income tax when you make withdrawals from that pension. From April 2027, inherited pension funds will also become subject to IHT within the deceased's estate — a significant change covered in detail in our article Pensions and Inheritance Tax: What the 2027 Changes Mean for You.

If you inherit shares or other investments and later sell them at a profit, you may be liable for capital gains tax (CGT) on the gain from the value at the date you inherited them (known as the probate value), not from the original purchase price. This is an important distinction and can significantly reduce your CGT exposure.

Income earned on inherited assets — for example, rent from an inherited property or dividends from inherited shares — is taxable as income in your hands in the normal way.

In most cases, yes. Before assets from an estate can be released to beneficiaries, the executors must obtain a grant of probate. This process can take anywhere from several months to over a year, depending on the size and complexity of the estate, whether IHT is owed, and how quickly the relevant forms and payments are processed.

While you are waiting, there is no need to make any financial decisions about the inheritance. Once the money does arrive, the most sensible first step for most people is to place it in a safe, accessible savings account while you take time to decide what to do.

No. There is rarely any need to make major financial decisions about an inheritance quickly. In fact, acting in haste — particularly when dealing with grief and significant life change — often leads to decisions that are not in your best long-term interest.

Placing an inheritance in a high-interest savings account while you take time to think is entirely sensible. Beyond the financial considerations, it also allows you to separate the emotional weight of what has happened from the practical decisions that follow.

The right approach for an inheritance will depend entirely on your own financial circumstances, existing commitments and long-term goals. The following options are not mutually exclusive — many people use a combination.

Pay off debts first

High-interest debts — such as credit cards, personal loans, or car finance — typically cost more to carry than any return you could reliably earn by investing. Clearing these is often the most financially sound first use of an inheritance. A mortgage is usually lower interest and the decision about whether to overpay is more nuanced — it depends on your mortgage rate, remaining term, and what you could earn by investing instead.

Build or replenish your emergency fund

Most financial planners suggest keeping three to six months of essential outgoings in accessible cash savings. If your emergency fund is depleted or non-existent, an inheritance is a natural opportunity to establish one.

Use your ISA allowance

You can contribute up to £20,000 per tax year into an ISA. If you have not used your ISA allowance for the current tax year, investing some or all of the inheritance inside an ISA immediately shelters future growth and income from tax. If the inheritance is large, you may need to drip-feed it over multiple tax years to stay within the annual limit. Our article on Stocks and Shares ISA Explained sets out how this works in practice.

Boost your pension

Pension contributions can be made up to your annual allowance (£60,000 for 2025/26, or 100% of your earnings, whichever is lower). Pension contributions attract tax relief — a basic-rate taxpayer making an £8,000 net contribution receives £2,000 in basic-rate tax relief, making the gross contribution £10,000. Higher and additional rate taxpayers can claim further relief through self-assessment. If you have unused pension annual allowances from the previous three tax years, you may be able to contribute more than £60,000 in a single year through the carry forward rule.

Invest in a general investment account

If you have used your ISA allowance and pension allowance, a general investment account (GIA) allows you to invest without annual contribution limits — but gains and income will be subject to capital gains tax and dividend tax in the normal way.

Consider gifting to family

If you inherit money you do not need and you have children or grandchildren, passing some on may form part of your own estate planning. Regular and structured gifts can reduce the value of your estate for IHT purposes over time. Our article on the Annual Gift Allowance Explained sets out the options in detail.

If you inherit shares or other financial assets directly (rather than cash), there are some important tax points to understand.

CGT base cost

When you inherit shares or investments, your base cost for CGT purposes is generally the probate value — the market value of the assets at the date of death, not the original purchase price. This means any gain that accrued during the deceased's lifetime is not charged to CGT in your hands when you come to sell.

CGT annual exempt amount

For 2025/26, each individual has an annual CGT exempt amount of £3,000. Gains up to this amount each year are free from CGT. The rates above this are 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers on investment assets. Planning disposals carefully — for example, selling in stages across tax years — can help manage your CGT exposure.

IHT refund on quoted shares

If you inherit shares that fall in value between the date of death and the date of sale, you may be able to claim a refund of IHT from HMRC on the reduced value. This relief applies only to quoted shares (listed on a recognised stock exchange) sold within 12 months of death and requires a formal claim to HMRC.

For smaller inheritances — a few thousand pounds — you may feel comfortable making decisions independently. For larger sums, professional financial advice is strongly recommended. A regulated financial adviser can:

• Review your full financial situation and advise on the most tax-efficient use of the money
• Help you balance competing priorities — pensions, ISAs, debt repayment, investing
• Model the long-term impact of different strategies for your specific circumstances
• Ensure any decisions fit within a coherent overall financial and estate plan

Look for a financial adviser who is authorised and regulated by the Financial Conduct Authority (FCA). TrustEvo can connect you with regulated advisers who specialise in helping people at exactly this kind of financial crossroads.