What to Do When You Receive a Significant Inheritance

Receiving a significant inheritance is simultaneously an emotional event and a major financial event. These two dimensions collide in a way that is rarely comfortable, and the combination is particularly dangerous from a financial planning perspective: the emotional context is at its most intense precisely at the moment when important financial decisions must be made.

This guide sets out a clear framework for managing a significant inheritance — not as a cold financial exercise but as a thoughtful process that acknowledges the human reality of the situation.

The Emotional and Financial Complexity

Grief and financial gain are uncomfortable companions. Recipients of significant inheritances frequently report guilt at benefiting financially from a loss; pressure from family members or friends who expect gifts or loans; euphoria that leads to impulsive decisions; and anxiety about the responsibility of managing assets they did not earn.

All of these emotional states are normal. None of them is a good basis for financial decision-making.

The most important first principle is this: you do not need to decide anything immediately. No investment decision made in the first weeks after receiving an inheritance is so urgent that it cannot wait. Any adviser who tells you otherwise should be treated with extreme caution.

What a Typical Inheritance Contains

Before planning can begin, it helps to understand what you have received. A significant inheritance typically includes some combination of:

Cash savings and bank accounts — the simplest element; immediately accessible but earning potentially negligible interest in the current account where it sits.

Investment portfolios — shares, bonds, funds, potentially alternative assets. These require review before action; selling immediately may crystallise gains or disrupt a portfolio that is still appropriate.

UK residential property — a family home or investment properties. These come with immediate obligations (insurance, council tax, maintenance, potentially tenants and rental income).

Overseas property — more complex; may require local estate administration, local taxes, and ongoing management.

Pension death benefits — currently paid outside the estate and to nominated beneficiaries; not subject to IHT under current rules. However, this will change from 6 April 2027, when unused pension funds will be brought within the scope of IHT. Rules and tax treatment are specific and require separate advice, particularly given this upcoming change.

Business interests — shares in private companies, partnership interests, or sole trader assets. These require specialist valuation and careful consideration of whether to retain or exit.

Personal possessions — art, jewellery, vehicles. These require insurance and, if valuable, specialist valuations.

The UK Tax Position on Receipt

A fundamental point that many beneficiaries do not fully understand: in the UK, inheritances are not taxed in the hands of the recipient. Inheritance Tax (IHT) is levied on the estate, not on the beneficiary. You receive what you receive net of any IHT already paid by the estate.

However, several tax considerations do arise from the point of receipt:

Income tax on inherited assets: From the date you receive inherited income-producing assets, the income is yours and is taxable. Rental income from an inherited property is immediately subject to income tax. Dividends from an inherited portfolio are immediately subject to income tax and must be reported on your self-assessment return.

Capital Gains Tax base cost uplift: When you inherit an asset, your CGT base cost is the market value of the asset at the date of death — not the original purchase price. This is potentially very valuable. If the deceased held shares originally purchased for £10,000 that were worth £200,000 at death, your base cost is £200,000. Any future gain is calculated from this higher base cost. This significantly reduces your future CGT liability.

CGT on future disposal: When you eventually sell inherited assets, you pay CGT on the gain above your base cost (at the date of death value). With careful planning, you can time disposals to use your CGT annual exempt amount and take advantage of lower-rate periods.

The 90-Day Rule

Our recommendation to clients who receive a significant inheritance: make no major financial decisions for 90 days.

During this period:

• Move any inherited cash to a high-yield instant-access savings account or money market fund. You are not "doing nothing" — you are ensuring the money is working appropriately while you plan.
• Ensure inherited properties are insured and any tenancy obligations are met.
• Begin (but do not rush) the review process with your professional advisers.
• Do not lend money to family or friends. Do not make large gifts. Do not invest in speculative assets. Do not purchase property. Do not give to charities beyond your normal level (you can plan this properly later).

The 90-day rule is not arbitrary. It allows the acute emotional response to grief to moderate, creates space for proper professional advice, and prevents the impulsive decisions that most inheritance recipients later regret.

The Proper Planning Sequence

After the 90-day period, a structured review should address four areas:

1. Tax Review

• What is the composition of inherited assets? Which are income-producing?
• What is the CGT base cost for each asset?
• What are the tax implications of retaining versus disposing of each asset?
• If you received a large inheritance in the same year as another large income event (business sale, high bonus year), how do you manage the combined tax position efficiently?

2. Protection and Estate Planning Review

The inheritance has materially changed your estate size. New obligations follow:

• Have you moved above the IHT nil rate band (£325,000 basic, potentially £500,000 with residence nil rate band) for the first time?
• Does your will still reflect your wishes given your new wealth level?
• Do you need to establish a trust for the benefit of your children or other beneficiaries?
• Do you need to update your lasting power of attorney?
• Is your life insurance coverage still appropriate relative to your new estate size?

3. Investment Review

• Should you merge the inherited portfolio with your existing one, or manage it separately?
• Is the inherited portfolio well-constructed for your goals? Many inherited portfolios reflect the deceased's risk tolerance and time horizon, not yours.
• What is the cost of selling and rebuilding versus retaining and adjusting? (Factor in CGT on any gains.)
• Does the inheritance change your overall asset allocation? (For example, if you have inherited a large residential property portfolio, you may now be overweight property relative to your goals.)

4. Pension Opportunity

A significant inheritance may create a pension contribution opportunity that you should not miss:

If you are a higher or additional rate taxpayer in the year you receive the inheritance (for example, because you have high employment income, or because the inheritance itself creates a large income), a substantial pension contribution can attract 40% or 45% tax relief. Combined with carry-forward of unused annual allowances from prior years, this can be very tax-efficient.

Avoiding the Inheritance Traps

Several patterns repeat reliably among those who mismanage inheritances:

Lending money to family. Inheritance recipients are frequently asked for loans by family members and friends. These are difficult to recover without relationship damage. If you choose to give (not lend), give an amount you are comfortable never seeing again.

Making large gifts immediately. Large gifts restart the seven-year IHT clock. They also reduce the estate that your own heirs will eventually benefit from. Plan giving deliberately over time.

The "not my money" problem. Inherited money is treated differently psychologically from earned money. Recipients sometimes take speculative risks they would never take with their own earnings because the inheritance feels less real. This is a recognised cognitive bias; guard against it.

Failing to update estate planning. The inheritance may have doubled or trebled your estate. Many people simply bank the money and never update their will, trust, or IHT planning. This transfers the planning failure to the next generation.

Overconcentrating in one asset. If the inheritance is primarily a single asset — shares in a family business, a single property — the concentration risk is high. Take advice on whether and how to diversify, managing the CGT implications carefully.

The International Dimension

For expatriates who receive inheritances from UK estates, the picture is more complex:

• UK probate may be required even if you are not UK-resident
• UK rental income from inherited UK property is subject to UK income tax and must be declared in the UK (via the Non-Resident Landlord Scheme and a UK SA return)
• The inheritance may need to be declared in your country of residence, even if it is not taxed in the UK
• Some countries (France, Germany, Spain) levy their own inheritance taxes on assets or beneficiaries located in or connected to those jurisdictions

Cross-border inheritances require professional advice in both the UK and the country of residence.

How Global Investments Can Help

Global Investments works with clients who have received significant inheritances to develop a structured, emotionally sensitive planning process. We review the inherited assets, model the tax implications, update the overall financial plan, and ensure that the wealth is invested in a way that reflects the recipient's goals rather than the deceased's.

An inheritance is an opportunity — to build long-term security, to plan effectively for the next generation, and to honour the wealth that has been passed to you. The right advice ensures that opportunity is not wasted.

This article is for information only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and will change. Investments can fall as well as rise in value. Always seek professional advice tailored to your specific circumstances.