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Can You Gift Your Pension to Your Children? UK Rules & Tax Guide

· 33 min

Note: The following scenario is fictional and used for illustration.

Michael, age 58, is an NHS consultant with a £420,000 pension pot built over his career. He recently learned about the 2027 inheritance tax changes and is weighing his options. His daughter Emma, 28, is struggling to afford a house in Bristol, while his son James, 25, needs help with a deposit in Manchester. Michael is considering withdrawing £105,000—his 25% tax-free lump sum—to give each child £52,500.

But the decision keeps him awake at night. Should he take the money out now and risk running short in retirement? Or should he leave it in his pension and potentially face a £168,000 inheritance tax bill when he dies? And what about this seven-year rule everyone mentions?

Michael's dilemma mirrors the anxiety felt by millions of UK pension holders aged 55 and over who are reassessing their retirement plans. Following the Autumn Budget 2024 announcement, the government estimates that 49,000 estates will face new or higher inheritance tax bills on pensions from April 2027.

This guide explains exactly how pension gifting works in the UK, compares withdrawing pension funds to gift now versus leaving pension as inheritance, clarifies the 2027 tax changes, and helps you decide the best strategy for your family.

Table of Contents

Understanding the Difference: Gifting vs Leaving Pension to Children

When people talk about "gifting a pension to children," they often mean two very different things. Understanding this distinction is crucial because each approach has completely different tax treatments and implications.

Gifting your pension means withdrawing funds while you're alive and giving the money to your children as a cash gift. You access your pension, pay any applicable tax, and hand over the money. Your children receive it immediately and can use it however they wish.

Leaving your pension to children means the pension passes to nominated beneficiaries as a death benefit after you die. The pension stays invested in your name until death, potentially growing tax-free, and then transfers according to your expression of wish form.

Why does this distinction matter? Because the tax treatment differs dramatically. When you withdraw pension funds to gift, you pay income tax immediately on amounts above your 25% tax-free allowance. When you leave your pension as a death benefit, different rules apply based on your age at death and, from 2027, whether your total estate exceeds inheritance tax thresholds.

Here's how the two approaches compare:

Aspect Withdrawing to Gift Now Leaving as Death Benefit
Your control Full control over amount and timing No control (you're deceased)
Tax on withdrawal Income tax on 75% (20-45%) No withdrawal tax while alive
Inheritance tax Seven-year rule applies None until 2027; 40% from 2027 if estate above £325,000
Children's access Immediate After your death
Investment growth Stops (money withdrawn) Continues until death
Reversibility Cannot reverse Can update nomination form

Consider Sarah, who has a £200,000 pension at age 62. If she withdraws £50,000 now to help her daughter buy a house, she'll pay income tax on £37,500 (the amount above her 25% tax-free allowance). If she's a basic rate taxpayer, that's £7,500 in tax, leaving £42,500 for her daughter.

Alternatively, if Sarah leaves the £200,000 invested until she dies at age 82, assuming 5% annual growth, it could grow to over £500,000. Under current rules (until 2027), if she dies before age 75, her daughter inherits tax-free. But from 2027, the pension becomes part of her estate for inheritance tax purposes.

Both strategies can work. The right choice depends on your retirement income needs, your children's current financial situation, your health, and the upcoming 2027 changes.

Before we explore leaving your pension to children after death, let's first look at whether you can access your pension now to make gifts during your lifetime.

Can You Withdraw Your Pension to Gift to Children?

Yes, you can withdraw money from your pension to give to your children, but you must meet certain age requirements and understand the rules governing access.

You can access most pensions from age 55, though this age is rising to 57 from 6 April 2028. You don't need to be retired or stop working to access your pension. This flexibility was introduced in the 2015 pension freedoms reforms.

When you access your pension, you can take up to 25% as a tax-free lump sum, with a maximum of £268,275. This is called the lump sum allowance. Any amount you take above this 25% threshold is added to your other income and taxed at your marginal rate.

Most defined contribution pensions allow you to withdraw funds flexibly once you reach the minimum age. You can take a lump sum, set up drawdown (taking regular income), or purchase an annuity. Workplace pensions typically follow the same rules, though you should check your specific scheme documentation.

Defined benefit pensions work differently. These are final salary pensions that pay guaranteed income for life. If you want to access funds to gift to children from a defined benefit pension, you usually need to transfer it to a defined contribution scheme first, which requires financial advice if the transfer value exceeds £30,000.

Here's a crucial point: accessing your pension before age 55 (or 57 from 2028) without qualifying for ill-health retirement typically triggers an unauthorised payment charge of up to 55%. Beware of pension scams that promise to help you access your pension early.

Let's look at how different pension types compare for withdrawal purposes:

Pension Type Can Withdraw? Access Age Tax-Free Amount Restrictions
Personal Pension (DC) Yes 55 (57 from 2028) 25% up to £268,275 None
Workplace Pension (DC) Yes 55 (57 from 2028) 25% up to £268,275 Check scheme rules
Defined Benefit (Final Salary) Limited 55+ (scheme dependent) 25% of transfer value Usually requires transfer to DC
State Pension No N/A N/A Cannot gift State Pension

David, age 56, has a £280,000 personal pension. He can withdraw £70,000 as his tax-free lump sum to help his two children with house deposits. The remaining £210,000 stays invested, and he can access it later through drawdown when he needs retirement income.

The key advantages of accessing your pension to gift are that you see your children benefit during your lifetime, you can help with immediate needs like house deposits, and you have complete control over the amounts and timing. The downsides are that you reduce your retirement pot, you may pay income tax on withdrawals above 25%, and you need to consider the seven-year inheritance tax rule.

Now that you know you can access your pension from age 55, let's explore exactly how much tax you'll pay when you withdraw funds to gift to your children.

The Tax Implications of Withdrawing Pension to Gift

Understanding the tax implications is crucial when deciding whether to withdraw pension funds to gift to your children. Tax affects how much your children actually receive and whether the gift creates future inheritance tax liabilities.

Your first 25% is completely tax-free. If you have a £200,000 pension, you can take £50,000 without paying any income tax. The maximum tax-free amount is £268,275, regardless of your pension size.

Everything above the 25% threshold is added to your other income for that tax year and taxed at your marginal rate. If you're a basic rate taxpayer earning £30,000 and you withdraw £80,000 from your pension, you'll receive £50,000 tax-free (assuming a £200,000 pension). The remaining £30,000 gets added to your £30,000 salary, pushing your total income to £60,000.

This matters because tax brackets work in bands. For 2024-25, you pay 20% on income between £12,571 and £50,270, 40% on income between £50,271 and £125,140, and 45% on income above £125,140. A large pension withdrawal can push you into a higher tax bracket.

Let's work through a concrete example. Emma, age 60, is a basic rate taxpayer with a £150,000 pension. She wants to help her son with a £60,000 house deposit.

Emma withdraws £60,000 from her pension. Her 25% tax-free allowance is £37,500 (25% of £150,000). She takes this full amount tax-free. The remaining £22,500 is taxable. As a basic rate taxpayer, she pays 20% tax: £22,500 × 20% = £4,500. Emma nets £55,500 after tax.

Now consider Robert, age 58, a higher rate taxpayer with a £400,000 pension. He withdraws £100,000 (his full 25% tax-free amount) to split between two children. Because it's all within his 25% allowance, there's no income tax. Each child receives £50,000.

But what about inheritance tax? This is where the seven-year rule comes in.

Gifts you make more than seven years before you die are exempt from inheritance tax. Gifts made within seven years of death are potentially exempt transfers that may be subject to IHT depending on when you die and the total value of your estate.

If you die within three years of making a gift, the full 40% inheritance tax rate applies (if your estate exceeds £325,000). Gifts made between three and seven years before death qualify for taper relief, reducing the tax rate gradually.

However, there are immediate exemptions you can use:

The annual exemption lets you gift £3,000 per tax year without it counting towards your estate. You can carry forward one year's unused exemption, allowing you to gift up to £6,000 if you haven't used the previous year's allowance.

Small gifts of up to £250 per person per year are exempt, and you can give these to as many people as you like.

Gifts from normal expenditure out of income are immediately exempt from IHT if they're regular, come from your after-tax income, and don't reduce your standard of living. This is particularly useful if you have surplus pension income you don't need.

Let's see how this works in practice. Margaret, age 65, has a £500,000 pension and receives £30,000 annual pension income. She only needs £22,000 to maintain her lifestyle. She gifts £8,000 per year to her grandchildren's Junior SIPPs. Because these gifts come from regular income and don't reduce her standard of living, they're immediately exempt from inheritance tax.

Here's what you need to know about tax on pension gifts:

  • First 25% of your pension is completely tax-free (up to £268,275 maximum)
  • Amounts above 25% are taxed as income at 20%, 40%, or 45%
  • Large withdrawals can push you into higher tax brackets
  • Gifts follow the seven-year rule for inheritance tax
  • Annual exemptions (£3,000) and small gifts (£250) are immediately exempt
  • Gifts from regular surplus income can be immediately exempt

One more scenario to illustrate the tax impact. Thomas, age 62, has a £300,000 pension and earns £40,000 from part-time work. He withdraws £150,000 to gift to his three children.

His 25% tax-free amount is £75,000 (25% of £300,000). The remaining £75,000 is taxable. Combined with his £40,000 salary, his total income becomes £115,000. He pays 20% on the portion up to £50,270 (basic rate band) and 40% on the remainder. After tax, he receives approximately £122,000 to distribute, giving each child around £40,667.

While withdrawing your pension to make gifts during your lifetime is one option, many people prefer to leave their pension to their children as a death benefit. Here's how that works.

Leaving Your Pension to Children After Death

Leaving your pension to children as a death benefit offers a different approach to wealth transfer, one that keeps your pension invested during your lifetime while ensuring it passes to your children after death.

Since the 2015 pension freedoms, you can nominate anyone to receive your pension death benefits. You're not limited to spouses or financial dependants. You can nominate children, grandchildren, other relatives, friends, or charities.

For defined contribution pensions, the full pension pot passes to your nominated beneficiaries. They can then decide how to access it. They can take a lump sum, set up drawdown to take regular income, or purchase an annuity.

Defined benefit pensions work differently. These pensions typically provide dependants' pensions for children up to age 18, or age 23 if in full-time education. The amount depends on your scheme rules, often around 30-50% of your pension entitlement.

The tax treatment depends on your age when you die. Under current rules (which apply until 2027), if you die before age 75, your beneficiaries can inherit your pension completely tax-free. If you die after age 75, beneficiaries pay income tax on withdrawals at their marginal rate.

Linda dies at age 72 with a £280,000 defined contribution pension. She nominated her two children to receive 50% each on her expression of wish form. Because she died before age 75, each child inherits £140,000 in a tax-free pension wrapper. They can take this as a lump sum immediately or leave it invested and draw down gradually over time, all without paying income tax.

Now consider Claire, age 78, who dies with a £400,000 pension and three children nominated equally. Because she died after age 75, each child inherits £133,333 in a pension wrapper but must pay income tax when they withdraw funds. If a child is a higher rate taxpayer and takes the full amount as a lump sum, they pay 40% tax, netting £80,000.

Children under 18 can receive dependants' pensions but cannot control lump sums until they reach 18. The pension scheme holds the funds in trust until the child comes of age.

Here's how the current rules work (until 2027):

Death Age Tax on Death Benefits Beneficiary Options IHT Position
Before 75 None - completely tax-free Lump sum, drawdown, or annuity Outside estate (no IHT)
After 75 Income tax on withdrawals Lump sum, drawdown, or annuity Outside estate (no IHT)

John, age 68, dies with a £350,000 pension and two adult children nominated equally. He died before 75, so each child inherits £175,000 tax-free. His daughter takes her £175,000 as a lump sum to pay off her mortgage. His son leaves his £175,000 invested in the pension wrapper, taking £20,000 per year as additional income. Neither pays any tax on these withdrawals because John died before 75.

The advantages of leaving your pension as a death benefit include keeping funds invested and growing tax-free until death, maintaining your retirement income throughout life, and (under current rules) potential tax-free inheritance for beneficiaries. The downsides are that you don't see your children benefit during your lifetime, you have less control over how they use the inheritance, and everything changes from April 2027.

Everything above applies until April 2027. But major changes are coming that will significantly impact how pensions are taxed when you die. Here's what you need to know.

The 2027 Inheritance Tax Changes Explained

The Autumn Budget 2024 announced fundamental changes to how pensions are treated for inheritance tax purposes. From 6 April 2027, unused pension funds and death benefits will be included in your estate for IHT calculations.

This reverses decades of pensions being outside the scope of inheritance tax. The government argues this change closes a loophole where wealthy individuals used pensions as unlimited IHT-free wealth transfer vehicles rather than for retirement income.

The numbers tell the story. The government estimates that of around 213,000 estates with inheritable pension wealth in 2027-28, 10,500 estates will have an IHT liability where previously they would not. Approximately 38,500 estates will pay more IHT than before. The average IHT liability is expected to increase by around £34,000 when pension assets are included.

Here's what's changing specifically. From 6 April 2027, when calculating inheritance tax, executors must include the value of unused pension pots and death benefits in the total estate value. If the combined estate (house, savings, investments, and now pensions) exceeds £325,000 (the nil-rate band), the excess is taxed at 40%.

Important exemptions remain in place. Pensions left to a surviving spouse or civil partner remain exempt from inheritance tax, just like other assets. Death in service benefits and dependants' scheme pensions from defined benefit schemes are excluded from the changes. Charitable gifts remain exempt.

The responsibility for reporting and paying IHT shifts to personal representatives (your executors), not pension scheme administrators. If executors reasonably expect IHT to be due, they can direct pension schemes to withhold 50% of benefits for up to 15 months to cover the tax bill.

Let's work through what this means in practice. Margaret is a widow, age 75, with a total estate of £650,000: a £300,000 house and a £350,000 pension.

Under current rules (until 2027), only the house counts for IHT. Her estate is below the £325,000 nil-rate band, so there's no inheritance tax.

From 2027, the pension counts too. Her total estate is £650,000. After deducting the £325,000 nil-rate band, £325,000 is taxable at 40%. IHT due: £130,000. Her children lose £130,000 to tax.

Now consider David and Susan, a married couple with a combined estate of £1.2 million: an £800,000 house and £400,000 in David's pension. David dies first in 2025, leaving everything to Susan. There's no IHT due to spouse exemption.

Susan dies in 2028. At this point, she has both nil-rate bands (£325,000 × 2 = £650,000) plus the residence nil-rate band of £175,000 × 2 = £350,000 if the house passes to direct descendants. Total allowance: £1,000,000.

Estate value: £1,200,000. Taxable amount: £200,000. IHT: £200,000 × 40% = £80,000.

Under current rules, the pension wouldn't count, so only the £800,000 house would be assessed. With the full residence nil-rate band, there would be no IHT. The 2027 change costs this family £80,000.

Three key implications flow from these changes:

  • Pensions become significantly less attractive as IHT-free wealth transfer vehicles
  • Married couples can still use spouse exemption to defer IHT until the second death
  • Executors must know about all pensions to report and pay IHT correctly

The 2027 deadline creates urgency for reviewing your pension and estate planning strategy. Given these changes, ensuring your pension goes to the right people is more important than ever. Here's how to nominate your children as beneficiaries.

Expression of Wish Forms: Nominating Your Children

An expression of wish form is the document that tells your pension provider who you want to receive your pension death benefits. Understanding how these forms work is crucial because your will cannot control who inherits your pension.

Pensions are typically held in trust, separate from your estate. Because they're not part of your estate, they don't pass under your will. Instead, pension scheme trustees have discretion over who receives death benefits, and they use your expression of wish form as guidance.

Here's the critical point: expression of wish forms are not legally binding. Trustees have final discretion and can override your wishes if they believe there are compelling reasons to do so. However, in practice, trustees usually follow expression of wish forms unless they're significantly outdated or there are vulnerable beneficiaries who need protection.

Completing an expression of wish form is straightforward. Most pension providers allow you to complete the form online in about ten minutes. You simply specify who should receive benefits and in what proportions. You can nominate one person for 100%, split between multiple people (such as 50% to each of two children), or specify exact percentages for several beneficiaries.

If you have multiple pensions, you need a separate expression of wish form for each scheme. Many people forget this and only complete a form for their main pension, leaving other pensions without clear direction.

You should update your expression of wish form after major life changes. Divorce, remarriage, birth of children, death of a named beneficiary, or simply changing your mind all warrant updating your form.

Let's look at how this works in practice. James has a £200,000 pension and wants to leave 60% to his daughter Sarah and 40% to his son Tom. He completes his pension provider's expression of wish form, nominating Sarah for £120,000 (60%) and Tom for £80,000 (40%). When James dies, trustees review the form and, finding it current and appropriate, distribute accordingly.

Now consider what can go wrong. Karen divorced, remarried, and has two adult children from her first marriage. She completed an expression of wish form 15 years ago naming her ex-husband as beneficiary. She forgot to update it after the divorce.

Karen dies with a £300,000 pension. Trustees see the outdated form naming her ex-husband. While they have discretion to override this, they may pay the pension to the ex-husband if they believe that was Karen's last expressed wish. Karen's current spouse and children receive nothing from the pension.

This scenario happens more often than you'd think. Always update your expression of wish form when your circumstances change.

Even with the 2027 IHT changes, expression of wish forms remain important. While pensions will be included in your estate for IHT purposes, the expression of wish form still guides trustees on distribution and helps avoid delays and disputes.

Here's what you need to remember about expression of wish forms:

  • They guide trustees but are not legally binding
  • You can nominate anyone (children, spouse, partner, charity, friends)
  • Update them after divorce, remarriage, new children, or changes of mind
  • You need a separate form for each pension scheme you hold
  • Even after 2027 changes, they remain the mechanism for directing pension death benefits

From 2027, there's another dimension to consider. Because executors will be responsible for reporting pension values and paying IHT, your expression of wish form should align with your overall estate plan to avoid creating IHT problems or family conflicts.

In addition to leaving your existing pension to your children, you might also consider contributing to their pension as a way to reduce your estate and build their retirement savings. Here's how.

Contributing to Your Child's Pension Instead

Contributing directly to your child's pension offers a different approach to wealth transfer, one that reduces your estate while building long-term retirement savings for your children.

For children under 18, you can contribute to a Junior Self-Invested Personal Pension (Junior SIPP). Anyone can contribute up to £2,880 per year to a child's pension, which the government tops up to £3,600 with 20% tax relief. This applies regardless of whether the child has any earnings.

For adult children with earnings, you can contribute to their personal pension or workplace pension. They receive tax relief at their marginal rate, and if you make the contribution, it reduces your estate for inheritance tax purposes.

The inheritance tax treatment depends on how you structure the contributions. Regular contributions from your surplus income that don't reduce your standard of living qualify as normal expenditure out of income and are immediately exempt from IHT. Otherwise, the seven-year rule applies.

The money stays locked until your child reaches minimum pension age (currently 55, rising to 57 in 2028). This provides protection against youthful spending but means funds aren't available for earlier needs like house deposits.

Let's see how this works with real numbers. Margaret and Peter have three grandchildren aged 6, 9, and 12. They contribute £2,880 per year to each child's Junior SIPP, totaling £8,640 annually.

With tax relief, each child receives £3,600 per year, totaling £10,800 across the three children. Margaret and Peter continue these contributions until each grandchild turns 18.

Assuming they contribute for 12 years to the youngest grandchild, that's £34,560 in net contributions that become £43,200 with tax relief. At 5% annual growth, this could be worth around £70,000 by the time the child turns 18 and over £400,000 by retirement at 68.

Because Margaret and Peter make these contributions regularly from surplus pension income without reducing their living standards, the contributions qualify as normal expenditure and are immediately exempt from IHT. Their estate reduces by £8,640 every year with no seven-year waiting period.

Here's another scenario. David contributes £800 to his daughter Emma's personal pension. With 20% tax relief added by the government, this becomes £1,000 in Emma's pension. If Emma is a higher rate taxpayer, she can claim an additional 20% relief through her tax return, making the effective contribution £1,250.

David's contribution reduces his estate if he survives seven years (or immediately if it qualifies as normal expenditure). Emma gets a pension boost with tax relief. Both benefit.

The advantages of contributing to children's pensions include:

  • Maximum tax efficiency (you get IHT reduction, child gets tax relief)
  • Money grows tax-free in the pension until retirement
  • Protects funds from being spent on short-term wants
  • Builds long-term financial security for your children
  • Can qualify as immediately IHT-exempt if from regular surplus income

The downsides are that your child can't access the money until minimum pension age, it doesn't help with immediate needs like house deposits or debt, and there's limited flexibility once contributions are made.

Contributing to a child's pension works best as a long-term wealth transfer strategy, particularly for grandparents who want to provide for grandchildren's distant future or parents who want to build retirement security for young children.

With all these options available—withdrawing to gift now, leaving as death benefit, or contributing to your child's pension—how do you decide which strategy is right for you? Let's compare.

Gifting vs Leaving: Which Strategy Is Right for You?

There's no one-size-fits-all answer. The right strategy depends on your retirement income needs, your children's financial situation, your health and life expectancy, and your total estate's inheritance tax position.

Let's start with a comparison of the three main approaches:

Strategy Tax on Transfer IHT Impact Child's Access Best For
Withdraw & Gift Now Income tax on 75% (20-45%) Exempt after 7 years Immediate Children need money now, you have other income
Leave as Death Benefit (current) None (if die before 75) or income tax (if die after 75) None (until 2027) After your death You need pension income, children stable
Leave as Death Benefit (2027+) None (if die before 75) or income tax (if die after 75) IHT at 40% if estate above £325,000 After your death Spouse inherits first (no IHT), then children
Contribute to Child's Pension None (gets tax relief) Reduces your estate Age 55+ (child) Long-term wealth building, children young

When should you withdraw and gift? This strategy works best when children have immediate financial needs such as house deposits, debt repayment, or education costs. It makes sense if you have other retirement income sources that cover your living expenses, you want to see your children benefit during your lifetime, and you're in good health with a reasonable expectation of surviving seven years.

When should you leave as a death benefit? This approach suits situations where you need your pension for retirement income, your children are financially stable without urgent needs, you want pension funds to keep growing tax-free, or you're uncertain about your health and life expectancy. From 2027, this becomes less tax-efficient for larger estates above £325,000.

When should you contribute to a child's pension? This strategy excels when children are young with long investment horizons, you want structured and controlled wealth transfer, children don't have immediate financial needs, and you have surplus income for regular contributions.

Let's examine three scenarios that illustrate when each strategy works best.

Sarah, age 62, has a £500,000 pension, £300,000 in other assets, and receives £30,000 per year from a final salary pension that covers all her living costs. Her daughter, age 35, is struggling to save a house deposit while earning £45,000.

Sarah's best strategy is withdrawing £125,000 from her defined contribution pension to gift to her daughter. She takes £100,000 tax-free (25% of £400,000 of her DC pension, staying under the £268,275 maximum) plus £25,000 taxable. As a basic rate taxpayer, she pays £5,000 tax, netting £120,000 for her daughter's house deposit. She still has £375,000 pension remaining, survives seven years making the gift IHT-exempt, and sees her daughter buy a house.

Robert, age 68, has a £350,000 pension as his only retirement income and no other savings. His son, age 42, is financially stable, owns his home, and has a secure job.

Robert's best strategy is leaving his pension as a death benefit. He takes income from the pension throughout retirement to maintain his lifestyle. When he dies, his son inherits whatever remains. If Robert lives another 20 years, the pension may grow despite withdrawals, potentially leaving more for his son than if Robert had withdrawn funds early.

Patricia, age 65, has an £800,000 total estate and receives £50,000 per year in pension income, well above her £35,000 spending needs. Her grandchild is 10 years old.

Patricia's best strategy is contributing £2,880 per year to her grandchild's Junior SIPP. Over 8 years until the grandchild turns 18, she contributes £23,040 that becomes £28,800 with tax relief. This reduces her estate by £23,040, and because contributions come from regular surplus income, they're immediately IHT-exempt. By retirement, her grandchild could have over £300,000.

You might also combine strategies. Many people withdraw some pension funds to help with immediate needs, leave the remainder as a death benefit, and make small regular contributions to grandchildren's pensions. The key is matching your strategy to your family's specific circumstances.

Consider these factors when making your decision:

  • Do you need your pension for retirement income, or do you have other sources?
  • Do your children need money now or can they wait?
  • What's your health and life expectancy?
  • What's your total estate value and potential IHT liability (especially from 2027)?
  • Do you want to see your children benefit during your lifetime?

Whatever strategy you choose, it's crucial to coordinate your pension planning with your will. Here's how to ensure everything works together.

Coordinating Pension Planning with Your Will

Your pension and your will must work together as parts of a coordinated estate plan, even though pensions don't pass under your will.

Here's the fundamental principle: pensions are held in trust and don't form part of your estate. You cannot leave your pension through your will. Your will has no control over pension death benefits.

So what should your will include regarding pensions? Your will should reference that you have pension arrangements, specify where pension documents and expression of wish forms can be found, and appoint executors with authority to coordinate with pension trustees.

If your children are minors, your will should include guardianship provisions. This becomes crucial if your pension passes to young children, as guardians will manage inherited funds until children reach 18.

Your will should include a comprehensive asset inventory that lists all pensions, even though they don't pass under the will. This ensures executors know what assets exist and can coordinate distribution.

What your will cannot do is override your expression of wish form, direct pension trustees to pay specific beneficiaries, or control how beneficiaries use inherited pension funds.

From 2027, executors' role expands significantly. They become responsible for reporting pension values to HMRC and paying any inheritance tax due on pensions. Executors can direct pension schemes to withhold 50% of benefits for up to 15 months to cover IHT bills.

Consider this example of coordinated planning. Stephen has a £500,000 estate: a £300,000 house and a £200,000 pension. His will leaves the house to his daughter and his savings to his son. His expression of wish form nominates his son for the pension. Result: each child receives approximately £250,000. Balanced.

Now consider uncoordinated planning. Jennifer has a £600,000 estate: a £400,000 house and a £200,000 pension. Her will leaves everything to her daughter. But Jennifer's expression of wish form still names her ex-husband as pension beneficiary because she forgot to update it after divorce. Result: daughter gets £400,000, ex-husband gets £200,000. Conflict and unintended outcome.

Your will should include language like this:

"I hold pension arrangements with [Pension Provider Names]. Details of these pensions, including expression of wish forms, can be found [location]. I direct my executors to notify the pension trustees of my death and coordinate distribution of death benefits according to my expression of wish forms filed with each provider."

From 2027, coordination becomes even more critical. Imagine this scenario: Marcus dies in 2028 with a £700,000 estate (£300,000 house, £400,000 pension). His executor must:

  1. Value both the house and pension to calculate total estate (£700,000)
  2. Calculate IHT: (£700,000 - £325,000) × 40% = £150,000
  3. Direct the pension scheme to withhold £150,000 before distributing to beneficiaries
  4. Pay HMRC the £150,000 IHT
  5. Distribute remaining £250,000 pension to beneficiaries per expression of wish form
  6. Distribute £300,000 house per will terms

Without coordination, executors might not know about the pension until it's too late, beneficiaries might withdraw pension funds before IHT is paid, or delays could occur that cost beneficiaries additional interest on unpaid IHT.

Key principles for coordinating pension and will planning:

  • Your will cannot control pensions, but it should reference them
  • Ensure executors know about all pensions and where to find documents
  • Align pension beneficiaries with overall estate plan to avoid imbalances
  • Review both will and expression of wish forms together after life changes
  • From 2027, ensure executors understand their IHT reporting responsibilities

Creating a comprehensive will that coordinates with your pension planning ensures your executors can efficiently administer your estate and your beneficiaries receive their inheritance as you intended. From April 2027, when pensions become subject to inheritance tax, this coordination becomes even more critical to minimise tax and avoid delays.

Need Help with Your Will?

Understanding how to gift pension funds to your children and coordinate this with your estate planning requires careful consideration of multiple factors. Whether you choose to withdraw and gift now, leave your pension as a death benefit, or contribute to your children's pensions, ensuring your will works alongside your pension strategy protects your family and maximises tax efficiency.

Create your will with confidence using WUHLD's guided platform. For just £99.99, you'll get your complete will (legally binding when properly executed and witnessed) plus three expert guides. Preview your will free before paying anything—no credit card required.

Frequently Asked Questions

Q: Can I take money from my pension to give to my children?

A: Yes, if you're aged 55 or over, you can withdraw money from your pension to give to your children. You can take up to 25% as a tax-free lump sum (maximum £268,275), and any amount above this is taxed as income. However, you should consider the seven-year rule for inheritance tax and whether this reduces your retirement income.

Q: Will my pension be subject to inheritance tax from 2027?

A: Yes, from 6 April 2027, unused pension funds and death benefits will be included in your estate for inheritance tax purposes. The government estimates that 10,500 estates will become liable for IHT where they weren't previously, and 38,500 estates will pay more IHT than before. Pensions left to a spouse or civil partner remain exempt from IHT.

Q: What is an expression of wish form for my pension?

A: An expression of wish form tells your pension scheme administrator who you'd like to receive your pension when you die. While not legally binding, it guides trustees' decisions and can help keep your pension outside your estate for IHT purposes (until April 2027). You should update it whenever your circumstances change.

Q: Can I contribute to my child's pension to reduce my estate?

A: Yes, you can contribute up to £2,880 per year to a child's Junior SIPP, which becomes £3,600 with tax relief. This can reduce your estate for inheritance tax purposes if it qualifies as a regular gift that doesn't reduce your standard of living, or if you survive seven years after making the gift. Contributions grow tax-free until the child reaches retirement age.

Q: How much can I gift to my children tax-free each year?

A: You have an annual gift allowance of £3,000 that won't be added to your estate for inheritance tax. You can also give unlimited gifts of up to £250 per person per year. Larger gifts become exempt from IHT if you survive seven years after making them, known as potentially exempt transfers.

Q: What happens to my pension if I die before age 75?

A: If you die before age 75, your beneficiaries can inherit your pension completely tax-free under current rules until April 2027. From 2027, the pension will be included in your estate for IHT purposes, but beneficiaries won't pay income tax on withdrawals if you died before 75. This is different from dying after 75, when beneficiaries pay income tax on withdrawals at their marginal rate.

Q: Do I need to include my pension in my will?

A: No, pensions don't form part of your estate and can't be left through your will. Instead, you should complete an expression of wish form with your pension provider to nominate beneficiaries. Your will should still reference that you have pension arrangements and where to find the details, so executors can coordinate distribution with other assets.

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.

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