What to do with a lump sum
A lump sum can go into cash, off your mortgage, into an ISA or a pension, or to your family.
A lump sum can go into cash, off your mortgage, into an ISA or a pension, or to your family.
Each has its own limits and its own tax rules.
Where the money came from decides some of the tax. Redundancy pay, a bonus, an inheritance and the proceeds of selling a business are each taxed differently before the money reaches you.
Where you put it next decides the tax on what it earns and how quickly you can get it back.
The advisers for this subject: Sunny Bharj and Tony Springer
The estate settles the inheritance tax before you receive your share. An inherited pension or ISA has its own rules.
Read the answer →Capital gains tax, Business Asset Disposal Relief and where the proceeds go after the sale.
Read more →Tax-free cash, drawdown and annuities, and the tax on each.
Read more →gov.uk, HMRC and the Financial Services Compensation Scheme, checked 26 October 2026. 2026/27 limits.
The £120,000 covers everything you hold with one bank, building society or credit union, and banks that share a banking licence count as one.
An instant access account keeps it within reach. Spread it across banks with separate licences where the balance is above the FSCS limit and outside a temporary high balance.
Credit cards, store cards and unsecured loans can charge far more interest than a mortgage. MoneyHelper's guidance is to pay these off before reducing a mortgage.
MoneyHelper suggests at least three to six months of living expenses. How much cash should I keep?
Weigh the rate you pay, any early repayment charge and how much you need to keep within reach. Should I pay off my mortgage or invest?
£20,000 a year into ISAs, and into a pension up to the annual allowance and your earnings. ISA or pension?
The £3,000 annual exemption and gifts out of surplus income leave your estate straight away. Giving money away
A lump sum can pay your living costs between stopping work and drawing a pension. You can take money from a pension pot from 55, subject to your scheme's rules, and earlier only for ill health or a protected right. The minimum age rises to 57 on 6 April 2028.
The State Pension cannot be paid before your State Pension age, so the years before it have to be funded from your own pensions and savings. Retiring earlier also gives a pension pot less time to build up. How much do I need to retire? Should I take my pension at 55?
Start with any credit card or loan balances and the emergency fund you want to keep. £50,000 is more than two years of the £20,000 ISA allowance, so some of it can go into a pension within your annual allowance and earnings, or into ISAs over the next tax years. If it is an inheritance, what should I do with inheritance money?
It sits inside the £120,000 FSCS limit at one bank only if you hold nothing else there or with a bank sharing its licence. It is five years of ISA allowance, and more than one year's pension annual allowance, so the order you use them in and the years you spread it over decide the tax on what it earns.
Investing it all at once puts the whole sum in the market from one date. Investing in stages spreads the dates you buy at and leaves some in cash for longer. Neither approach can promise a better result, and the choice depends on how long you are investing for and how you would feel about a fall soon after you invest.
That depends on where it came from. The first £30,000 of redundancy pay is free of income tax, a bonus is taxed as pay, inheritance tax is settled by the estate before you receive your share, and a business sale can carry capital gains tax. Once you hold it, the interest, dividends and gains it earns are taxed as yours unless it sits in an ISA or a pension.
A lump sum can fund the years before your pensions start. Personal and workplace pensions can be drawn from 55, rising to 57 on 6 April 2028, and the State Pension from your State Pension age, which you can check on gov.uk.
The value of investments and any income from them can fall as well as rise and you may get back less than you invest. Tax treatment depends on your circumstances and on current rules, both of which can change.
The first £30,000 is free of income tax. Notice pay and holiday pay are taxed in full, and part of the payment can go into a pension.
Read the answer →It depends on your mortgage rate, any early repayment charge, more expensive debts, your pension and how much you need within reach.
Read the answer →A bonus is taxed as pay. Bonus sacrifice can send it to your pension, and above £100,000 it reduces your personal allowance.
Read the answer →MoneyHelper suggests three to six months of living expenses in instant access. The FSCS protects £120,000 per person at each bank.
Read the answer →
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