Can you leave your pension to your children?

Can you leave your pension to your children? From 2027, most pensions will count as part of your estate for inheritance tax, but whether your children pay tax depends on your total estate value and the type of pension you hold.

The government has already had your income, your savings interest, your dividends and your capital gains, and now it wants a slice of your pension too. Can you leave your pension to your children? Whether tax is due depends on the value of your estate and the type of pension involved.

What changes in 2027

From 2027, pensions form part of your estate for inheritance tax under the rules announced in Rachel Reeves' budget. For a married couple who own a house, the £1 million threshold could include pension savings. Amounts above the threshold may be taxed at 40%.

Pension types and what your children could inherit

If you hold a defined contribution scheme, such as a personal pension, a group personal pension scheme or an occupational pension scheme, this money could become subject to inheritance tax after 2027. Your children could inherit less than you expect once the tax is applied.

Defined benefit pensions work differently to other types. Only your spouse can inherit continuing payments, and the pension itself cannot pass to your children at all.

Annuity contracts sit outside these rules too, since most stop paying out completely once you die, leaving nothing for your children to inherit. Many advisors, including Regulated Advice, have seen a spike in enquiries from clients worried about these changes. Pension related inheritance tax can be difficult to mitigate.

Can pension inheritance tax be mitigated

There is no simple way to avoid inheritance tax on pensions once the 2027 rules apply. Whether you can leave your pension to your children without an inheritance tax charge depends on your pension type and wider estate. However, a financial advisor can review your pension type, your wider estate and any trust or gifting options that may reduce the impact on your children.

Get advice on leaving your pension to your children

Pension inheritance tax rules are changing fast, and the right approach depends entirely on your pension type and wider estate. Speak to a regulated advisor who specialises in inheritance tax before 2027 arrives.