Inheritance, lump sums & pensions

By June 24, 2020 No Comments

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.

Many young people in the UK are facing significant financial pressures as house prices have risen over recent decades, far outpacing wage growth. As such, it is understandable that many hope that a future inheritance lump sum will help them gather the necessary funds for a house deposit. Yet research shows that, in 2020, those most likely to receive an inheritance are aged 55-64 with the median sum amounting to about £11,000.

This makes it difficult for young people and families to rely on an inheritance sum for their home ownership plans. How, therefore, should you integrate a possible future inheritance with your financial plan if you are younger, and how should those approaching retirement (e.g. 55-64s) utilise a potential lump sum during this period? Should the latter commit the amount towards their pension, and if so, how? In this article, our Lancashire-based financial advisers here at Elmfield offer some thoughts on these important questions.

We hope this content aids your thinking. If you’d like to speak to an independent financial adviser about your financial plan you can reach us via:

T: 01282 772938

How to regard inheritance in financial planning

Family discussions about inheritance can be complicated as it’s a sensitive topic. The owner of the estate in question might feel that younger generations are simply after their money by raising the matter, whilst the children or grandchildren might feel that the older generation in their family is neglecting them by not raising it. Whether you broach the topic, how and when will depend on the distinct dynamics and strength of relationships within your family. Regardless of the situation, however, our financial advisers would offer the following thoughts:

  • Try not to assume a certain amount of money will come to you through an inheritance, at a certain point in time.
  • Many unforeseen circumstances can obstruct this from happening and could, therefore, significantly derail your financial plan if it is built on these assumptions.
  • A future divorce, family fall-out or long-term care costs could significantly erode the value of the estate in question, also reducing your potential inheritance.
  • The owner of the estate might also not have planned their estate properly, which could result in taxes which reduce its value considerably.
  • Given the likely time of receiving an inheritance (55-64) and amount (i.e. £11,000), for many people it’s best to assume that you will get less than you had hoped for, and later.
    If you do receive an inheritance one day try to see the money as a nice “bonus”.


Of course, there are always exceptions and it’s wise to consider these cases and possibilities too. Suppose you are 30 years old with a spouse and two children, and suddenly a relative dies leaving you with £300,000 from their estate. What should you do with it? Here, it will be crucially important to seek financial advice. After all, you could just keep it as cash in a regular savings account. Yet this is likely to erode the value of the sum over time as any interest over £1,000 per year is taxed, and the interest rate on the account (likely less than 1%) will almost certainly not beat the rate of inflation. Many alternate possibilities lie before you including buying a house outright, putting down a sizable deposit and investing some of it (e.g. in a Stocks & Shares ISA).

Older inheritance recipients

If many people appear set to receive an inheritance in their 50s or 60, how should this group of people approach such a lump sum? At this point in your life, you have likely paid off much of your mortgage (if you are a homeowner) and are getting ready to retire. You might already have two, three or even four decades-worth of wealth behind you from a long and successful career. As such, how you plan for a potential future inheritance will depend largely on your personal financial goals and situation.

For instance, those who have already paid off their house and have a comfortable retirement pot already saved up may be inclined to use any inheritance as a gift for their children and/or grandchildren (e.g. helping them get on the housing ladder). Others, however, might be in more difficult financial circumstances and thus welcome the sum as a helpful means to help boost their emergency fund, pay off a burdensome debt or boost a pension pot.

Here, it’s a good idea to discuss your options with a financial adviser. Bear in mind that some of the assets you inherit might be liable to tax. For example, in 2020-21 any pension funds passed to you are tax-free if the owner was aged under 75 when they died. However, if you receive a large investment portfolio from them then this will likely need to face inheritance tax (IHT) at 40% if the total assets exceed £325,000 in value.

Conclusion & invitation

If you are interested in starting a conversation about your financial plan, then we’d love to hear from you. Get in touch to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.

Reach us via:

T: 01282 772938