Millions of over-55s intend to use the £3,000 annual gifting exemption before pension savings begin counting towards inheritance tax next year, according to new research. An estimated 2,790,000 people in "pre-retirement" plan to give away £3,000 on average, the Great British Retirement Survey found.
From April 6 2027, most unused defined contribution pension funds will be incorporated in the value of an estate for UK Inheritance Tax (IHT) under the Finance Act 2026.
Cliff Edge for Retirement Savers
Craig Rickman, personal finance expert at Interactive Investor, said: "The end of the current tax year is shaping up to be something of a cliff edge for retirement savers."
"Pensions have traditionally been one of the most tax-efficient ways to pass on wealth, but bringing unused savings into the inheritance tax net is prompting many to rethink their estate planning strategy."
However, he cautioned that making significant financial decisions in reaction to a tax change "could leave you short" later in life. "Tax efficiency matters, but not at the expense of your own financial security," he said.
Gifting Rules and Exemptions
AJ Bell noted that individuals can pass on money without attracting inheritance tax, though strict limits apply. The annual exemption allows £3,000 per person making the gift, with any unused portion carried forward for one year. Small gifts of up to £250 per recipient are also exempt, provided they are not to the same person as the annual exempt gift.
Wedding gifts of £5,000 to a child, £2,500 to a grandchild, and £1,000 to anyone else are also exempt, and can be combined with the annual allowance but not the small exemption.
Martin Lewis, on his BBC Podcast, discussed the rules with Lucie Spencer from Evelyn Partners. Spencer explained: "So there's the large gift allowance, which is £3,000 per individual per tax year. And what that means is I can give £3,000, my large gift allowance, either to one person or split between multiple people and also I could reclaim a tax year as well, so if you haven't given that £3,000 in the last tax year, you can effectively give £6,000 today."
On the £250 rule, Spencer said: "So the £250 rule effectively I could stand on a street corner and give £250 to as many people as I wish. What I can't do is give a person £1 more. So Martin, if I were to give you £250 in this tax year, what I can't do is come back to you and say 'have another £50 on top of that'."
Advice on Record-Keeping and Planning
Spencer recommended that all gifts be written down and held with a will, as they must be detailed on the inheritance tax form after death. Asked at what age people should start keeping notes, tax barrister Harriet Brown suggested "Early 40s," while Spencer said "In your 50s. Maybe when you've received an inheritance so your wealth is more."
Rickman advised that pensions still offer valuable tax benefits and that savers should consider tax efficiency holistically, including ISAs and other vehicles, rather than rushing to distribute pension savings before 2027.
