Windfalls and inheritance

The information in this guide was last updated on 15/01/2016

Coming into a large sum of money isn’t something that happens often. Before you commit yourself to spending, investing, giving gifts or even giving up your job, it makes sense to take some time to consider your financial situation and your options. Don’t feel that you have to do anything in a hurry. Whether it’s an inheritance, a bonus or even a lottery win, a windfall opens up lots of opportunities. Here are some tips to help you make the most of it.

Keep it separate

Initially, it may be worth opening a separate savings account for your windfall so you can benefit from interest while you decide what to do with it. Find out about different savings accounts in our guide to Making the most of your savings.

Consider any tax implications

Tax implications vary depending on the type of windfall you’ve received.


Estates may pay inheritance tax (IHT) if they're valued at over the inheritance tax threshold – this is currently £325,000 for 2015-2016. Inheritance tax is payable at 40% over this amount (unless 10% of the deceased's estate has been left to charity, then the rate is 36%).

Inheritance tax is usually paid with funds from the estate of the person who’s died. So in most cases, once you’ve received your inheritance you won’t need to pay any more IHT on it. However, you may need to pay income tax if your inheritance generates an income for you. You may also be liable for capital gains tax in some circumstances. For more information see GOV.UK Inheritance tax.


Often your employer will deduct the tax and National Insurance from your bonus on your behalf.

Lottery wins

Lottery winnings and other gambling wins are not considered to be income and are not taxed. But if you give away some of your winnings and die within seven years they might be subject to inheritance tax. 

Other windfalls

If you’ve come into your money by selling an asset that has increased in value – shares, for example – you may have to pay capital gains tax (CGT). There’s an annual tax-free allowance - for the current limit check GOV.UK Capital Gains tax.

Review your budget

Financial planning starts with knowing where you stand with your money. To begin, take a good look at your monthly incomings and outgoings and see how your windfall can best help you with your monthly budget. If there’s a shortfall in your monthly budget, you might want to consider investing your windfall to generate an income to cover it. 

Consider paying off or reducing your debts

The interest on paying back money can wipe out any gains from savings. That’s why financial experts advise paying off debts before you think about putting money away. You may not want to pay off all your debts with your windfall, but if you can it’s important to deal with debts like loans secured against your home or credit cards with high interest rates. 

Think about saving or investing

There are a range of savings products on the market, from tax-free ISAs to savings bonds. Try to make the most of tax-efficient savings options such as your ISA allowance first. If you’re willing to take more risks with your money, you may decide to invest. Investments can potentially yield greater returns than savings, but you could lose some or all of your money.

Consider putting something towards long-term goals

It can be tempting to spend an unexpected windfall on something short-term (such as a holiday or home improvements), but it could be a great shortcut to getting your long-term finances on track. If you don’t have much in the way of savings for your retirement, you might want to use your windfall for your pension pot. You can do this either by topping up an existing pension, or starting to save into one to help make sure you’re financially secure when you stop working.

Take advice

If you’re thinking of investing your windfall, it's important you seek financial advice.