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It usually refers to a large amount of money, such as a bonus, and can provide a number of options for saving, spending and investing.
There are a few reasons why you might receive a lump sum payment, including:
Here are a few options to make the most of a lump sum payment:
Add it to your savings account
Make a payment into your retirement fund
Whether you’re saving for something specific, or just want to build up an emergency fund, you could add a lump sum payment straight into a savings account.
From fixed rate and easy access savers to individual savings accounts (ISAs), which are a tax-efficient way to save, there are a number of accounts to choose from. Eligibility criteria apply.
Investing can potentially offer better returns than simply saving your money if you're comfortable taking some risk. You have a few options to get into investing, such as:
You don’t have to go all-in with your full lump sum payment. If you have an HSBC current account or eligible savings account, you could dip your toe in the water and start investing with £50. Eligibility criteria and some fees apply.
Investing should be seen as a medium to long-term commitment, which means you should be prepared to invest for at least 5 years. This could give you a chance to ride out any short-term dips in the market. However, you can access the money at any time if you need to.
Be sure to keep some money aside to cover for emergencies, so you're less likely to dip into your investment. Remember, investing has its downs as well as ups – and you could get back less than you invest.
Explore: Investing for beginners
Paying your lump sum, or part of your lump sum, into your pension can help give it a boost.
You can usually add up to 100% of your salary – up to the threshold of £60,000 – a year into your pension fund. If you meet certain criteria, you can also carry forward up to 3 years of unused allowances.
You may also be able to make the most of any tax relief, as most basic rate taxpayers get a 25% top up. For example, if you paid £30,000 into your pension, the government would add a further £7,500 in tax relief. Higher rate taxpayers can claim more through their self-assessment tax return.
Make sure to keep track of your pension contributions throughout the year, so you don’t go over the limit.
If you have any debts, you may be able to make a lump sum payment to pay them off. For example, paying off a loan or credit card balance early.
You’ll still need to meet the minimum repayments on all your debts, but making a lump sum payment could reduce the amount of interest you pay.
You could also use a lump sum payment to make overpayments on your mortgage or if you’re nearing the end of your mortgage and have enough, paying the remaining balance off.
Make sure to check for any fees or early repayment charges when paying off any debts early.
Explore: Should you save or pay off debt?
There’s nothing wrong with spending a little bit of your money on yourself if you can afford to. For example, you may want to use it to fund home improvements or to take your family away on holiday.
You can do a few things with your lump sum payment, depending on your circumstances and how much you get. It’s completely up to you. For example, you could split it up into different pots:
Receiving a lump sum of money can be big a life event and may feel overwhelming. Getting advice – whether from your bank, an independent financial advisor, or a trusted family member or friend – can provide valuable support.
Explore: The benefits of financial advice
Depending on where the lump sum is coming from and how much you get, you may need to pay tax on the money you receive.
You may have received:
If your employer is paying you a lump sum, for example a bonus, it should be taxed at the source and paid to you once the tax has been paid.
Usually, the first 25% will be tax-free from both income and capital gains tax, while the remaining 75% will be taxed as earnings. If you decide to take all your pension in one go, it’s important to get guidance or take professional advice before you make a decision.
Depending on the circumstances, you or the estate may have to pay inheritance tax (IHT) on the money you receive. For example, if the value of the estate is more than the inheritance tax-free threshold (known as the Nil Rate Band), which is £325,000.
If you sell an investment (outside of an ISA or pension) you may need to pay capital gains tax. Only the profit you make is subject to tax, not the total amount of money you get from the sale. For example, if you bought shares for £15,000 and sold them for £20,000, your £5,000 gain could be subject to capital gains tax.
Remember – the value of any tax benefits described will depend on your individual circumstances and tax rules could change in the future. Tax-free means free of UK income tax, capital gains tax or IHT.
This article was last updated: 30/10/2025, 03:30
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