What should you do with an inheritance in your fifties or sixties?
An inheritance usually arrives at a bad time for making decisions, and almost nothing about it is urgent. The tax on the estate has already been settled before you receive anything, so the money is yours to move at whatever pace suits — and the only real deadlines are the annual allowances that expire each April.
- No tax on receipt: Inheritance Tax is paid by the estate; the beneficiary receives a net amount.
- No deadline: nothing about the money requires a decision in the first months.
- What does expire: the annual pension allowance, the ISA allowance and the CGT exemption.
- The exception: an inherited pension, which has its own rules and its own timing.
01 What you owe, which is usually nothing
Inheritance Tax is a charge on the estate, settled by the personal representatives before distribution. A beneficiary receiving cash or assets from an estate has no Income Tax or Inheritance Tax to pay on the receipt itself.
What can arise afterwards is ordinary: income from an inherited asset is taxable as your income, and a subsequent disposal is a chargeable gain measured from the value at the date of death rather than from what the deceased paid. That rebasing is often favourable.
An inherited ISA is a specific case. A surviving spouse or civil partner can claim an additional permitted subscription equal to its value, on top of their own allowance, which preserves the wrapper. Anyone else receives the money outside a wrapper.
Source: Inheritance Tax
02 Why waiting is the right first move
There is no deadline. Cash sitting in a savings account for six months earns a modest return and costs almost nothing in opportunity terms against the risk of a decision made in the weeks after a bereavement. Every irreversible option — an annuity, a property purchase, a gift — is still available later.
The pressure to act is usually external. A lump sum attracts attention, and the industry that sells products to people holding one is not neutral about how quickly they decide.
The exception is where the money is needed to clear expensive debt, which is a straightforward calculation rather than a decision. Clearing a balance at 20% is worth doing immediately whatever else is unresolved.
Source: FCA consumer information
03 Then use the allowances that expire
Once the six months are up, the useful moves are the ones with a deadline. The pension annual allowance and any carry-forward, the ISA allowance, and the Capital Gains Tax annual exempt amount all expire on 5 April and none of them carries forward beyond its own rules.
For someone still earning, a pension contribution is usually first: relief at the marginal rate, and carry-forward from three previous years can absorb a large sum in one go — subject to the earnings limit, which caps relief at your relevant earnings for the year.
After that, the ISA allowance each year, and a general investment account for anything above it, realising gains against the exemption annually. Where the sum is large, spreading contributions across two tax years by straddling 5 April doubles what the wrappers absorb.
Shows: how much of a lump sum the annual wrappers can absorb this tax year and next. Ignores: your relevant earnings, carry-forward, the money purchase annual allowance, and any tax on the money outside a wrapper.
On the defaults above, the worked example shows £120,000. Two tax years of allowances absorb the whole amount, so nothing needs to sit unwrapped for long.
Do nothing for six months. That is genuinely the advice, and it is the hardest to follow because a lump sum generates attention from people who sell things. Nothing about the money is urgent — the estate has already paid whatever tax was due, and every option that exists now will still exist in the spring. The one exception is expensive debt, which is arithmetic rather than a decision. After six months, work with the calendar: pension allowance and carry-forward, ISA allowance, CGT exemption, and split the contributions across 5 April so two years of allowances do the work of one.
FAQ
Do I pay tax on an inheritance?
Not on the receipt. Inheritance Tax is charged on the estate and settled before distribution, so a beneficiary receives a net amount. Income from an inherited asset is taxable afterwards, and a later disposal is measured from the value at the date of death.
Is there a deadline to do anything?
No, other than the annual allowances that expire on 5 April — pension, ISA and the Capital Gains Tax exemption. Every irreversible option remains available later, which is why waiting a few months costs almost nothing.
What about an inherited ISA?
A surviving spouse or civil partner can claim an additional permitted subscription equal to its value, over and above their own allowance, preserving the wrapper. Any other beneficiary receives the money outside a wrapper and has to use their own allowance to rewrap it.
Sources
Regulator references
- Inheritance Tax · GOV.UK · 2025The nil-rate band, the 40% rate and what forms part of the estate.Last verified: 2026-09-07
- FCA consumer information · Financial Conduct Authority · 2025The regulator's own consumer guidance on the products discussed here.Last verified: 2026-09-07
- Annual allowance on pension savings · GOV.UK · 2025The annual allowance, the money purchase allowance and how they interact.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.