Should I gift a lump sum from my pension to family? Understanding the Inheritance Tax implications

1 July, 2026

You are likely aware of the upcoming inclusion of unspent pension pots for Inheritance Tax (IHT) calculations from 6 April 2027.

This has sparked a wave of interest in finding alternative ways to save for the future.

While it might seem necessary to reduce the amount contained in your pension pot, there are tax implications that must be considered.

Is it a good idea to gift a lump sum from my pension?

Accessing a lump sum of your pension can be useful for a range of reasons, as you or your loved ones could benefit from the money you have saved over years of work.

However, IHT is not the only tax implication of accessing pension lump sums, as these can be subject to Income Tax.

You can access up to 25 per cent of your pension tax-free and the most you can take across all pensions tax-free is £268,275 – a figure that only concerns those with pensions worth more than £1,073,100.

If you are under 75 and expected to live less than a year because of serious illness, you may take all of the money from your pension in a lump sum without paying tax, provided it is below the lump sum and death benefit allowance.

Knowing what is possible to withdraw then allows you to determine whether gifting is a viable strategy.

What are the tax implications of gifting a lump sum from my pension?

Gifting can reduce IHT exposure, even to nil, but the rate of tax exemption is determined by when the gift was given in relation to when you die.

The rates are as follows:

While having less than a year to live can let you gift your entire pension as a lump sum, doing so would not move it out of scope for IHT.

Instead, gifts should be planned and given sooner rather than later to ensure that IHT is reduced or removed.

However, gifting from your pension too soon could leave you vulnerable if you later find that you need the money that was given away.

Align your pension plans with IHT

Taking a comprehensive approach to estate planning is vital for reducing IHT exposure without negatively impacting your quality of life.

Our expert team can review your estate and plans to determine the most effective strategy for you.

Keep Inheritance Tax exposure controlled without missing out on life now. Get in touch with our team.