Money Matters: Receiving an Inheritance

Losing a loved one can be a very emotional and overwhelming time for all involved. With so much to process/deal with, it can be difficult to make important decisions and to think about the future.

In this guide, Rupert Lovesy aims to support you through this period and help you consider what you should do if you find out you will be receiving an inheritance, so you’re well prepared to make more informed decisions.

Executor

If you are set to receive an inheritance, the executor* of the deceased’s estate should inform you and keep you updated on progress.

The appointed executor of the estate has the job of identifying and valuing all assets that were owned by the deceased, paying any inheritance tax due, settling any debts and then distributing the estate.

There’s No Rush!

If you’ve just had a big change in your situation and are set to inherit a significant sum of money, don’t panic. There’s no rush and you’re probably not ready yet to make long-term decisions. It can take longer than you may think to receive an inheritance – usually over 6 months but sometimes a year or more.

The Financial Services Compensation Scheme limit usually covers your cash deposits up to a limit of £85,000 per banking institution, however there is a temporary high balance exception covering you for up to £1m if you have a temporary high balance due to a qualifying life event (such as receiving a windfall or inheritance). This covers you for a further six months once the funds are transferred to you, giving you additional time to consider your options thoughtfully. A well-considered decision is always better than a quick one!

What will you receive?

You might receive a cash sum, but it’s also possible you could inherit smaller segments of an investment bond, investment funds, company shares, a property or a pension fund. As the disposal of these may have tax implications, it’s possible that you and the other beneficiaries may need some advice at an early stage to avoid the estate incurring tax unnecessarily.

What difference could your inheritance mean to you?

A change in your financial situation opens up a world of new possibilities. You might be tempted to make a high value impulse purchase, but alternatively paying off debt could enable you to save a significant amount in interest and have more to spend (or save) each month. It’s important to think long-term once you are able to.

Think about your financial goals, any debts you have, having peace of mind in case of emergencies and setting aside a portion for the future or investing towards retirement. Having a proper plan can be life changing and for many people, receiving an inheritance is the first time they take professional financial advice.

Will you be able to use it?

Due to the aging population, many people are inheriting later on in life, when they may already have their own financial independence. If you don’t need all or any of the sum you are to inherit, there’s little point holding on to it until the end of your lifetime and it then becoming subject to another lot of inheritance tax.

One option is to make a ‘deed of variation’ - a legal document that allows you to change how you receive your inheritance – which enables you to redirect assets to another person, add beneficiaries, or even set up a trust for tax efficiency. You can make a deed of variation to a will within 2 years of the death, if all parties have capacity and are in agreement. This prevents the assets from entering your estate, compared with gifting the funds, which would potentially result in a potential inheritance tax liability for the following 7 years.

Your own legacy

Receiving an inheritance is a good time to consider your own wishes – your will might need updating (or writing in the first place), or it might be important to you to preserve particular assets for your loved ones and enable them to pay any potential inheritance tax. Maybe you are interested in lifetime gifting so you can enjoy seeing the benefit of gifting while you’re alive. This is another area where it is important to take professional advice.

What are the common mistakes?

• Impulse purchases – during this heightened emotional period is not a good time for knowing what you want, so there is a greater chance of regret.

• Mental accounting – treating the inherited funds as a separate lump sum rather than considering your new financial situation as a whole.

• Holding cash long-term – if you’re not going to spend an amount of money within the next few years, inflation will reduce its value in real terms.

• Giving too much away – improving your overall financial situation might enable you to provide longer-term support for your loved ones and favourite charities.

• Taking too much risk – as you gather assets, there’s a need to balance looking after what you have with growing your assets further.

• Not making your own decisions – it’s tempting to think about what the person who had left you the money would have done, but it’s important to think about what is right for you.

• Not taking professional advice – a financial adviser will help you identify your goals, create a plan with you, and put arrangements in place to help you to achieve what is important to you, whist guiding you on tax-efficiency and changes in legislation.

Conclusion

In summary, becoming the beneficiary of an inheritance offers a host of new opportunities. It also presents a number of potential additional banana skins into your life as well, that you’ll need to carefully consider. It’s important not to make any hasty decisions, to have a plan and to ensure you take appropriate professional advice.

Written by Rupert Lovesy

* If there was a will in place, the role of the executor will be assigned according to that stated in the will. If the person did not leave a will, the executor is called an administrator, and the role typically falls to the closest living relative in a specific order of priority. This is the closest living relative - normally the husband, wife or civil partner (including if you were separated) followed by any children 18 or over (including legally adopted children but not stepchildren).

This article is intended for information purposes only and it does not constitute a personal recommendation or inducement to invest. The contents of this article are not intended to be construed as legal, accounting, tax or investment advice. With any investment your capital is at risk. You should seek independent financial advice if you are unsure whether an investment product is suitable for your personal financial circumstances and appetite for risk. Unless otherwise stated this information is accurate as at 07/11/2025.