Parents giving money to children are being warned about a significant HMRC rule change that takes effect in April 2027 under Labour Prime Minister Andy Burnham's government. From April 6, 2027, most unused pension funds and death benefits will be counted for Inheritance Tax purposes, potentially affecting estates that previously owed no tax at all.
Why the timing of gifts matters more than ever
Experts have stressed that the timing of wealth transfers is crucial, as money can have a greater impact when received earlier in life. While the pension change is a reason to review lifetime gifts, families should not be hurried into making gifts they might regret, they say.
Nouran Moustafa, Practice Principal & IFA at Roxton Wealth, said: "Inheritance is often most powerful before someone becomes financially comfortable. £50,000 at 35 could be the difference between renting and buying, starting a business or not, or taking proper parental leave. The same £50,000 arriving at 60 may still be welcome, but it may not change someone’s life in the same way."
Care costs: the hidden risk outside Inheritance Tax
Beyond Inheritance Tax, a significant risk exists that councils in England can charge for care as if a gift was never made, with no fixed time limit if care needs were foreseeable. Gifts should only be made from money you could never need to call on, experts have said.
Harvey Dhillon, Founder and CEO at Zmartly, explained: "The pension change is a good reason to review lifetime gifts, but it shouldn't hurry anyone into giving. For deaths from April 6, 2027, most unused pension money counts in the estate for Inheritance Tax, so some estates that owed nothing before could face a bill."
"The biggest risk in giving sits outside Inheritance Tax. In England, if avoiding care charges was a significant reason for a gift, the council can charge as if the money were still yours, and there's no fixed time limit, so living for years after the gift doesn't make it safe," Dhillon added.
Practical guidance for donors
Moustafa emphasised that tax should never be the only reason to gift: "The pension Inheritance Tax changes from April 2027 make the timing conversation even more important, but tax should never be the only reason to gift. The first question is always: can the donor genuinely afford to give the money away? Longevity, future care costs and financial independence come first. After that, I think inheritance planning should focus less on dying with the smallest possible tax bill and more on using wealth at the point it can create the greatest impact."
Dhillon noted a key test: "A key test is whether a need for care could reasonably have been foreseen when the gift was made, so a parent who gives while fit and healthy is on far firmer ground. Nobody knows how long they'll live or what care will cost, so a gift should only come from money you could never need to call on."
He also highlighted a specific trap: "On the tax side, if you stay on without paying a full rent in a home you've handed to a child, it stays in your estate however long you live."
Good estate planning, Moustafa concluded, "is not just about what you leave. It is about when you let it go."
