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What would you do with a £100k inheritance?

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This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.

What would you do with a £100k inheritance if it suddenly came your way? Perhaps you would want to spend it on a new car or holiday. Someone with a “saver” personality, however, might wish to invest it all. Maybe you’d want to give some of it away. Whatever you choose, however, it pays to make sure your decisions help you achieve your overall financial goals.

Below, our team at Castlegate (financial planners in Grantham, Lincolnshire) share some ideas on what could be done with a £100,000 windfall. We hope you find this content helpful. If you want to discuss your own financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:

01476 855 585

#1 Set some aside for emergencies

For many people, the COVID-19 lockdowns since 2020 brought their job security into sharp focus. Here, having an emergency fund of, say, 3-6 months’ worth of living costs can help tide you over during times of lost work/redundancy. This can help with other unexpected, sudden costs such as a family emergency or major, necessary maintenance work (e.g. repairs to a car or roof). Some of a £100k windfall could be used to boost this “emergency fund”.

#2 Pay down/off debts

The annual percentage rate (APR) on many credit cards is very high these days, averaging at 21.46% in 2022. Letting expensive debts hang over you adds up to large sums of interest, eroding your monthly finances and long-term wealth creation. Using some of an inheritance to pay these off can really help.

#3 Tackle your mortgage

Not all debts are the same. A UK university student loan and your mortgage are not as urgent to repay as an unpaid credit card. With that said, some people may benefit from using some/most of a £100k inheritance to overpay – or fully pay off – a mortgage. This can help save on the overall interest you pay in the long term and make your monthly finances more comfortable, leaving more income for investing, saving and discretionary spending.

#4 Make an ISA/pension contribution

Are you making the most of your ISA allowance? Each tax year, you can put up to £20,000 into your ISA(s) and receive interest, capital gains and dividends free from tax. Your pension is also a highly tax-efficient way to invest. Under the “annual allowance” rules, you can contribute up to 100% of your earnings or up to £40,000 (whichever is lowest) into your scheme(s).

With your pension, you can also use any unused annual allowance from the previous three tax years. This could, therefore, potentially allow someone to commit a full £100,000 inheritance into a pension in certain circumstances. Your contributions also receive tax relief equivalent to your highest rate of income tax. So, a Higher Rate taxpayer would get a 40% “boost” to their contribution from the UK government.

#5 Giving

For many people, it is important to be generous with what they receive. This could take the form of donating to a cause/charity you believe in (make sure you claim Gift Aid). You may also want to give to a loved one – such as a child. In this case, one idea could be to open a Junior ISA for your son or daughter and commit some of your inheritance into it. Up to £9,000 can be put into a Junior ISA each tax year, earning tax-free interest and/or investment growth until you hand over management of your account to your child when they turn 18.

#6 Personal development

Have you wanted to do a Masters degree, PhD or career-related qualification involving a high course fee? Investing in yourself using a windfall could be a great way to grow your prospects and even increase your earning potential in the long term, without resorting to costly career development loans. If nothing else, it can improve your sense of wellbeing and goal-focus.

#7 Enjoyment

There is nothing wrong with setting aside some of a windfall towards something you want to do. Perhaps you’ve always wanted to take a worldwide cruise with your spouse in retirement. Or maybe you want to complete an extension on your property. After considering the investment related ideas above, why not?

Final thoughts

Those who receive an inheritance have a delicate balance to achieve. First of all, they need to consider their deceased loved one’s wishes – as well as their own – when deciding how to use the money. Secondly, it is important not to make decisions too soon, or too late.

After all, you may not be able to make informed decisions about a windfall immediately after a loved one’s death. On the other hand, keeping the money in cash for long periods risks disproportionate damage from inflation – as well as an “opportunity cost” by not employing it more usefully, elsewhere.

Conclusion & invitation

If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:

01476 855 585