Claire Trott, Technical Connection

Utilising the £3,000 inheritance tax annual gifting exemption is a great way to pass on funds tax efficiently to the next generation. One of the most tax efficient ways to do this is by making contributions to children’s pensions, because of the benefit in tax relief.

Utilising the £3,000 inheritance tax annual gifting exemption is a great way to pass on funds tax efficiently to the next generation. One of the most tax efficient ways to do this is by making contributions to children’s pensions, because of the benefit if tax relief.

Tax relief is granted on pension contributions, even if you don’t have any earnings, up to £3,600 gross, which is £2,880 net — so within the annual gifting exemption.

The £3,000 is per tax year and can be carried forward for one year if not used. So if no gifts have been made in the last couple of years, now is the time to make sure that these exemptions are not lost. Making a pension contribution for two children will use this and get them on the pensions ladder.

Pension contributions paid are only tested against the receiving individual. This means they have no impact on the amount of pension contributions that can be made by the individual actually funding the contribution.

Getting contributions into a child’s pension restricts access for a number of decades, but it also will show the child the power of investing and compounding when they finally get to see what has been saved in their account.

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This article is intended for regulated financial advisers and investment professionals only.

The statements and opinions expressed in this article are those of the author and don’t necessarily reflect those of Wealthtime or any of its employees. The company does not take any responsibility for the views of the author.

The above is based on understanding of current law and HMRC practice, and Government proposals regarding future law and HMRC practice, as at 23 February 2026, and are presented for general consideration only and no action must be taken or refrained from based on the content of this article alone. Each case depends on its own facts and advice is essential. Accordingly, neither Wealthtime nor Technical Connection, nor any of their officers or employees can accept any responsibility for any loss occasioned as a result of any such action or inaction.

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