Windfalls2 min read · Updated 21 October 2026
Just inherited money? What to do with £250,000 in the UK
A sensible order for an inheritance in the UK: pause, clear expensive debt, build a cushion, then use ISA, pension and mortgage options, with the tax facts.
Pause
There is no hurry. Put the money in an easy-access savings account while you think. Interest above your Personal Savings Allowance is taxable. Do not make big decisions in the first months of grief.
A sensible order
- Clear debt above about 8%, such as cards and personal loans.
- Build a cushion of three to six months of costs.
- Use this year’s ISA allowance (£20,000) and next year’s.
- Top up your pension if you are on track to use the tax relief.
- Decide whether to overpay your mortgage or invest.
Mortgage or invest?
Overpaying a mortgage is a guaranteed return equal to your rate. Investing may return more but with risk. Compare after-tax. If your rate is below the savings rate, investing or saving may beat overpaying.
Tax facts
Inheritance tax is paid by the estate before it reaches you, not by you. Income and gains from the money are taxable after you receive it. Ask for the estate’s paperwork, and consider a fee-only adviser for large sums.
Common questions
Do I pay tax on an inheritance?
Not as income. The estate may pay inheritance tax before you receive it.
Should I pay off my mortgage?
Compare your mortgage rate with what savings and investments can earn after tax.
What is the ISA allowance?
£20,000 a year for 2026/27.