What Not to Do When Inheriting Money
The most common financial mistake after receiving an inheritance is making large spending or investment decisions too quickly. Grief affects judgment, and decisions made in the first few weeks are often the ones people regret most. Parking the money in a savings account for three to six months gives you time to think without losing value.
Do not ignore high-interest debt. Paying off credit cards, overdrafts, or personal loans before investing is almost always more financially efficient, because the interest rate on debt typically exceeds what a savings account or cautious investment would return.
Do not leave large sums sitting in a standard current account. The Financial Services Compensation Scheme protects up to £85,000 per person per bank. For inheritances specifically, temporary high-balance protection covers up to £1 million for six months from the date of deposit, but after that window closes, anything above £85,000 is unprotected if the bank fails.
Do not overlook the tax consequences of what you do next. Inherited money itself is not taxed in your hands, but investing it outside of an ISA or pension generates taxable income and gains. Giving large amounts away without planning can also create problems, because gifts you make may form part of your own estate for IHT purposes if you die within seven years.
Finally, check your benefits position. Inheriting money can reduce or remove entitlement to Universal Credit and other means-tested benefits, and the change should be reported promptly. For more on the tax side, see our guide on whether you need to inform HMRC after receiving an inheritance. Our page on the most common inheritance mistake covers a related pitfall worth knowing about.
Do not ignore high-interest debt. Paying off credit cards, overdrafts, or personal loans before investing is almost always more financially efficient, because the interest rate on debt typically exceeds what a savings account or cautious investment would return.
Do not leave large sums sitting in a standard current account. The Financial Services Compensation Scheme protects up to £85,000 per person per bank. For inheritances specifically, temporary high-balance protection covers up to £1 million for six months from the date of deposit, but after that window closes, anything above £85,000 is unprotected if the bank fails.
Do not overlook the tax consequences of what you do next. Inherited money itself is not taxed in your hands, but investing it outside of an ISA or pension generates taxable income and gains. Giving large amounts away without planning can also create problems, because gifts you make may form part of your own estate for IHT purposes if you die within seven years.
Finally, check your benefits position. Inheriting money can reduce or remove entitlement to Universal Credit and other means-tested benefits, and the change should be reported promptly. For more on the tax side, see our guide on whether you need to inform HMRC after receiving an inheritance. Our page on the most common inheritance mistake covers a related pitfall worth knowing about.