Receiving an inheritance
Your inheritance and you
We understand how hard it can be when you lose a loved one. Anyone receiving an inheritance, especially a large one, will rightly have questions about what they should do to make the most of it. This content aims to give you answers to some of your questions. It's a place you can turn to for guidance and check that you've thought everything through carefully. Take your time, it's better not to rush into any decisions.
Things to ask yourself
It’s important that you feel comfortable about what you do with your inheritance. These questions should give you lots to think about.
What are your goals?
What do you need money for? Now? What about the future?
Are you in debt?
Do you have any loans, credit cards or a mortgage to pay off?
Do you have cash savings?
Aim to keep some savings for a rainy day or emergency?
Thinking about investing?
Are you wondering about the benefits of investing your inheritance and want to know more?
Keeping all of your inheritance?
Do you plan on using all of your inheritance or will you pass any of it on? Whether that’s in the future or sometime soon.
Looking for financial advice?
Have you though about financial advice? Knowing that you’re making the most of your inheritance can help bring peace of mind.
What happens when you inherit a pension?
A pension is typically the second largest asset - after the family home - that many people own. The information provided here relates to UK registered pension schemes - which often sit outside someone's estate. Please note that schemes from other jurisdictions may not be recognised by HMRC and be part of a taxable estate.
Usually, the scheme administrator will write to the beneficiary to let them know what their options are for withdrawing the money. Unlike other assets you can inherit, executors - or family and friends - aren't involved in the decision-making.
The scheme administrator will review key information, including an expression of wish, to help decide who the pension is left to. Wills and the laws of intestacy (guidelines for if you pass away without a will) will also be taken into consideration if the key information they have isn't enough.
Pensions and tax
A pension typically sits outside of a person's estate for inheritance tax purposes. However, there may be some other taxes you need to consider, such as income tax. Anything left in someone's pension can be paid to their beneficiaries when they die - whether that's as a lump sum or at regular intervals. In terms of tax rules:
- If the person died before they're 75 - this money is generally tax free.
- If the person died after the age of 75 - any money paid out will be subject to tax based on the individual tax position of the beneficiary.
We always suggest seeking advice from a tax specialist as they'll be able to provide you with personalised tax advice. Go to the government's income tax site for more information.
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Find out moreImportant information: This is for information purposes only and the views contained are not to be taken as advice or a recommendation for any product, service or course of action. If you need advice about how any of this information applies to you personally, you should contact an authorised financial adviser. Tax treatment depends on individual circumstances and all pension and tax rules may change in the future. You cannot normally access your pension savings until age 55. This is due rise to 57 in 2028.