Investing an inheritance is a different kind of situation.

Typically the inheritance comes with more emotional attachment than other types of money you might have to invest.

Because of this you might have conflicting emotions as to how the money should be invested. Should you treat it as a windfall and do something nice with it? If so, would you feel bad about ‘blowing’ the money that was so considerately passed on to you? Do you invest it for growth and income? If so, would you be happy risking it, or again feel bad if it lost its value?

Because you didn’t earn the money yourself and kind of see it as someone else’s money you tend to feel more responsible when considering what to do with it. The donor may have even left instructions in their will as to how the money is to be used or invested. Some of the options open to you and the considerations are listed below.

1. Invest it

You could invest the money so that it provides you with higher returns over the long term than you could receive in a bank account. If that is the case then deciding how much risk you want to take and how you want to set up the investments will be key, as well as of course deciding what the investment objectives will be.

2. Pay off your mortgage

An easy option might be to pay off your mortgage. It would certainly be one of the options that gives you the most instant pleasure, knowing your monthly payments are going down, or even stopping completely, and that the property is now yours. However weighing up what your mortgage interest rate is versus what you could earn by investing the money is of use here. Paying off the mortgage might be the safer option but it might not earn you the most money.

3. Put it in a Pension

In the right situation you could instantly grow your inheritance by an extra half. If you are a higher rate taxpayer you could invest the inheritance in a Pension and earn tax relief of 40%. For example if you inherit £50,000 and invest it in a Pension then your Pension will have £62,500 (after adding tax relief) inside it, and you will be able to claim back a further £12,500 through your tax return. So your inheritance of £50,000 will instantly grow to £75,000. Obviously you would need to check on the latest Pension rules to ensure what you are doing is within the permitted limits.

4. Spend it

You could of course spend it. Ultimately money is there to make you feel secure and good about yourself. The reason anyone passes money to you is, I dare say, exactly for these purposes. So if you don’t really need the money and you feel secure enough about your current and future financial position, then why not spend it. That is not to say you would just blow it on a holiday or car. You might choose to spend it on yourself, your children or your family. You might buy a bigger house, pay for University eduction, your children’s house deposit etc. There are lots of ways of enhancing your life by spending money. It’s not always about saving and investing.

5. Do nothing

Another option might be to do nothing for a while and see how things go. Sometimes when the money you inherit is unexpected it is a good idea to let it sink in and consider carefully what you might want to do with it. Remember money should make you feel secure and good about yourself, and should ideally enhance your lifestyle. How you go about that might not be immediately obvious as many lottery winners will testify I’m sure.

Blog by Jaskarn Pawar

Jaskarn Pawar is an experienced and award winning Chartered and Certified Financial Planner. He advises people all over the UK on financial planning and wealth management issues to help them reach solutions to fit their personal needs. You can contact Jaskarn on 01604 211234 or by e-mail on