How can you pass your pension to your children and cut Inheritance Tax after 2027?

I've heard that from 2027 my children could lose as much as 64p in every £1 of my leftover pension to Inheritance Tax, so they'd only keep around 36p. Is that right, and is there anything I can do to protect more of it for them?

Here’s where the 36p figure comes from: If you, the pension owner, die after 75, your pot is above the Inheritance Tax (IHT) threshold (£500,000 for a single person, including a property you leave to your kids), and your child is a higher-rate taxpayerIn the UK, the first £12,570 of your income is tax-free, covered by the Personal Allowance. After that, earnings up to £50,270 are taxed at 20% — the basic rate. Income between £50,271 and £125,140 falls into the higher rate band and is taxed at 40%. Anything above £125,140 is taxed at the additional rate of 45%., they could lose 64p in every £1 of your pension.

This will apply from April 2027, when unused pensions start counting towards the estate for IHT.
Gifting can be your friend, especially if you have ‘surplus income’ and can gift larger sums today without impacting your standard of living.

And then the annuity trick. Here’s basically how it works:

Trade your pension lump sum in for an annuity. The annuity turns the pot into income that stops when you die. Once the pension pot has bought a lifetime annuity, there's no pot left for the new April 2027 IHT rules to catch.

Use the money to pay the premiums for a policy held in trust for your kids – this is treated as a gift if it’s a regular payment paid from income, leaving you enough for your usual standard of living. A whole-of-life policy written in trust pays out outside your estate. Your kids get the payout free of IHT, and quickly, without waiting for probate.

This is really complicated stuff. I’m giving you ideas here, but you should get advice from a qualified professional, not someone like me on social media and I wouldn’t just trust Claude or ChatGPT with this either. Everyone’s arrangements are unique to them. Complex and easy to mess up! Expect to pay a financial adviser between £150 and £275 an hour; ask for a quote for IHT planning alone; investigate some fixed-fee advice packages like Charles Stanley or get ongoing advice, which will cost you around 2% - 2.5% a year ongoing for a holisticTraditional financial advice is transactional—you get help with a specific product or decision, like choosing an ISA or pension, then off you go. Holistic advice looks at your whole life. It considers all your finances alongside your personal goals, worries, and lifestyle plans, then builds a long-term strategy around them. The relationship is ongoing rather than one-off, and everything's tailored to you—not just matched to a product. In short: traditional advice solves a specific problem. Holistic advice helps you build a life., personalised service across all your money.