With pensions set to fall into inheritance tax (IHT) from 2027, some families are asking whether they should move their pension into a trust. In most cases, the answer is no, because pensions are already one of the most tax-efficient vehicles you can hold.
Trusts can be powerful tools in estate planning. They can help control how wealth is passed on, provide protection for vulnerable beneficiaries, and offer some tax advantages.
But pensions are not like other assets. They already sit outside your estate (until 2027), grow tax-efficiently, and can usually be passed on flexibly to beneficiaries. Moving them into a trust often creates more problems than it solves.
Why people consider it
Why it rarely works
~Double taxation risk – money taken out of a pension is subject to income tax. Put it into a trust, and you may also face trust taxes (like the 10-year charge).
~Loss of flexibility – pensions are highly flexible. Trusts are rigid by comparison.
~Extra costs – setting up and running a trust involves legal fees and ongoing administration.
~The 2027 IHT change is not absolute – many families won’t be affected because they don’t have large enough pension pots for IHT to bite meaningfully.
When it might make sense
There are rare cases where pensions and trusts interact usefully, for example, if there’s a need to protect vulnerable beneficiaries or manage complex family dynamics. But these are exceptions, not the rule.
Bringing it together
For most families, pensions are already one of the best vehicles for passing on wealth. Moving them into a trust risks extra tax, less flexibility, and higher costs.
If you’re worried about inheritance tax, it’s usually better to review your entire estate, property, ISAs, and business assets, rather than dismantle one of the most tax-efficient wrappers you already have.
Nic Round is a Chartered Financial Planner and Chartered Wealth Manager, authorised and regulated by the Financial Conduct Authority