Receiving an Inheritance UK: What to Do First

The answer, up front. The best thing you can do with an inheritance in the first three months is almost nothing — park it somewhere safe and boring, and buy yourself the time to place it well. When you do act, three facts do most of the work: as the beneficiary you usually pay no tax to receive it (the estate settles inheritance tax before you get it); any future growth, income or gains are yours to be taxed, so wrappers matter; and a deed of variation lets you redirect an inheritance within two years — a genuinely powerful, little-known tool. The people who do badly aren't the ones who invested wrong; they're the ones who moved fast, under pressure, on a decision that rewarded patience.

This is educational information, not regulated financial advice or a personal recommendation.

An inheritance arrives tangled with grief and, often, other people's opinions about what you should do with it. Here's a calm framework to place it on your own terms.

The one idea most people miss

A windfall feels like it demands a big, clever move. It doesn't. The cost of waiting three months in a safe account is trivial; the cost of a rushed permanent decision — buying the wrong thing, lending to the wrong relative, paying a salesperson's product — can be permanent. The professional instinct with sudden money is to slow down and preserve optionality. Park it, then plan it.

A decision framework for a windfall

1. Understand who actually pays the tax (usually not you).
In the UK, inheritance tax is paid by the estate before assets are distributed — so as a beneficiary you generally receive your inheritance tax-free. The estate pays IHT at 40% on value above the available allowances: the nil-rate band of £325,000, plus the residence nil-rate band of up to £175,000 where a home passes to direct descendants (tapered away for estates over £2m). Spouses inherit from each other free of IHT (unlimited spousal exemption) and can pass unused bands on — which is why a married couple can often pass up to £1 million. Knowing this stops the common panic of "how much tax will I owe" — usually none on receipt.

2. But the future is taxable — so wrap it.
The moment the money is yours, its future income and gains are taxable to you. Cash generates taxable interest above your Personal Savings Allowance; investments generate gains taxed above the £3,000 CGT allowance. So a core move is to feed the windfall into tax shelters over time: fill your £20,000 ISA each tax year, make pension contributions (marginal-rate relief), and cover spouses' and children's allowances too. A £200,000 inheritance can be sheltered methodically over several tax years.

Move it into shelter, one tax year at a time

Parked safely first, then fed into shelter each April — the taxable balance falls as the ISA-and-pension balance rises, until the whole windfall is protected from further tax on its growth.Fact: the ISA allowance is £20,000 per person each tax year. Assumption: a further ~£20,000/year of pension contributions (subject to your allowance and earnings); pace and amounts are illustrative and depend on your own limits.

3. Consider a deed of variation — the two-year rewrite.
Within two years of the death, beneficiaries can use a deed of variation to redirect some or all of their inheritance as if the deceased had left it that way — without it counting as a gift from you. Uses: passing it straight to your own children (skipping a generation and your own estate), diverting to a spouse or charity for IHT efficiency, or correcting an out-of-date will. It's one of the most powerful and underused tools in UK estate planning — but the clock is two years.

4. Watch the inherited-asset CGT base cost.
Assets you inherit are generally "rebased" to their market value at the date of death. If you later sell, your gain is measured from that value, not the original owner's cost — often wiping out decades of pregnant gains. But if you hold an inherited property or share portfolio and it rises further, that new growth is taxable to you. Deciding whether to keep or sell an inherited asset is a tax question, not just a sentimental one.

5. Clear expensive debt and secure the base — then invest.
Before chasing returns, the highest certain return is usually clearing high-interest debt and topping up the emergency buffer. Then place the rest according to your actual goals and timeline — not according to whoever called you first.

Place it without being rushed. Connect your accounts and map it in the aggviz planner: model clearing debt vs investing, sheltering the windfall across ISA and pension over several tax years, and what a deed of variation would change — free, on data you own.

A worked mini-example

Marcus, a higher-rate taxpayer, inherits £250,000 in cash and a portfolio. His instinct is to invest it all immediately "to make it work."

On receipt: He owes no tax to receive it — the estate settled IHT. Relief, and pause.
The trap he avoids: Dumping £250,000 into a taxable general account would generate taxable interest and gains from day one. Instead he parks it in a cash ISA and a top-rate account, then feeds £20,000/year into his ISA and makes pension contributions with 40% relief, sheltering it over several tax years.
The generation-skip: He already has enough for his own retirement, so he uses a deed of variation to redirect £100,000 to his children — keeping it out of his future estate (where it would eventually be taxed at 40%) entirely legitimately.

Same £250,000. By slowing down, wrapping it, and using the deed, Marcus avoided years of unnecessary tax and removed £100,000 from a future 40% IHT charge.

Common mistakes

Rushing a permanent decision while grieving and under pressure.
Assuming you owe tax to receive it (you usually don't) — or missing that the future growth is taxable.
Leaving it in a taxed account instead of sheltering it across tax years.
Missing the two-year deed-of-variation window.
Selling an inherited asset without checking the death-date base cost (or holding one blindly).
Lending or gifting to relatives before securing your own base.

A short first-steps checklist

Park it somewhere safe and boring for a few months. Decide nothing under pressure.
Confirm the IHT was settled by the estate (you usually receive tax-free).
Clear high-interest debt; top up the emergency buffer.
Shelter the rest over time: ISA each year, pension relief, spouse's allowances.
Consider a deed of variation within two years.
Check the death-date base cost before selling inherited assets.

An inheritance is often someone's life's work. The respectful thing — and the smart thing — is to place it deliberately, not quickly.

Do it next

Model it yourself, free. Map the windfall in the aggviz planner — debt vs investing, sheltering across tax years, the deed-of-variation effect — on data you own.
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This is educational information, not regulated financial advice or a personal recommendation. aggviz provides planning tools and education on data you own; inheritance tax and CGT depend on the estate and your circumstances — confirm your position with the estate's solicitor or a qualified adviser before acting.

NOT FINANCIAL ADVICE

aggviz provides educational information and planning tools on data you own. This guide is general information — it is not, and does not create, a personal recommendation or a regulated advice relationship. Your money decisions are your own. For a decision specific to your circumstances, speak to a suitably qualified, regulated adviser.

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