For many parents and grandparents, helping the next generation onto the property ladder is one of the most meaningful ways they can share the wealth they've built over a lifetime.
With house prices continuing to outpace earnings in many parts of the UK, many young people are struggling to buy their first home without financial support from their family. In fact, Savills estimates that more than half (53%) of first-time buyers now receive support from the ‘Bank of Mum and Dad’ through gifts, loans or inheritance, and that’s now extending to the Bank of Gran and Gramps.
At the same time, many people approaching or already in retirement have built up significant pension savings and are asking whether surplus money in those funds could help their children or grandchildren achieve home ownership sooner.
It’s a question that’s become even more relevant following the announcement of the changes to the Inheritance Tax treatment of pensions from April 2027.
Using your pension fund to help your kids buy a house isn’t necessarily a straightforward decision. Have you considered how a withdrawal could affect your retirement income, tax position and long-term financial security?
Before making any decisions, it’s important to understand both the opportunities and the potential consequences.
Helping your children today shouldn't come at the expense of your own financial security.
Could you use your pension to help your children?
In many cases, yes. If you have a defined contribution pension, you can usually begin accessing your pension from your Normal Minimum Pension Age, which is currently 55 but due to increase to 57 from 6 April 2028 for most people.
Once you can access your pension, you may be able to use it to help your children in a number of ways. For example, you could:
- use part of your available tax-free cash lump sum (subject to current allowances) to help fund a house deposit move into drawdown and take flexible
- withdrawals to provide financial support, either as a one-off gift or over a number of years
- use pension income to help your children with mortgage repayments or other housing costs
If you have a defined benefit (final salary) pension, the options are often more limited. These schemes generally provide a guaranteed income rather than a flexible investment pot, so accessing a lump sum or making additional withdrawals might not be straightforward.
Because different pension arrangements work differently, it’s important to understand exactly what type of pension you have before making plans.
Should you use your pension to help your children?
Being able to access your pension is one thing, but whether or not it’s the right thing to do is another.
Many parents naturally prioritise helping their children, but retirement could last 20, 30 or even 40 years. Once pension money’s been withdrawn and gifted, it generally can’t be replaced.
Before accessing your pension, think about how the decision could affect you:
- your future retirement income
- the impact of inflation on your spending power
- unexpected healthcare or long-term care costs
- your investment growth potential
- your financial independence later in life
It’s worth keeping in mind that while your children may need help today, your future self might need financial support too. The challenge is finding the right balance.
Five questions to ask before accessing your pension
1. Will you still have enough income throughout retirement?
This is often the most important question. Many people focus on whether they can afford the gift today, without fully considering what their finances might look like in 15 or 20 years’ time.
When reviewing your retirement plans, think about:
- how you want to spend your retirement and what it might cost
- inflation
- possible care costs
- unexpected events that could hit your wallet
- how long your pension may need to last
A financial planner will help you calculate the income you’ll need to meet your retirement goals before considering whether gifting pension assets is sustainable.
2. Could taking money now create an unnecessary tax bill?
While part of your pension may be available tax-free, additional withdrawals are usually subject to Income Tax.
Taking a large amount in a single tax year could potentially move you into a higher tax band and increase the amount of tax you have to pay. Sometimes spreading withdrawals over several tax years might be more tax efficient than taking one large lump sum.
But every situation is different, which is why it’s important to understand the tax implications before making a withdrawal.
3. Are there other assets that may be more suitable?
Your pension isn’t necessarily the first place to look when helping your children financially. Depending on your circumstances, you may also have:
- Cash savings
- Individual Savings Accounts (ISAs)
- Other investments
- Property wealth
Each has a different tax treatment, accessibility rules and long-term implications. For some families, using cash savings or ISAs first might preserve valuable pension benefits for later life. For others, using pension assets could form part of a sensible long-term financial strategy.
The most appropriate solution depends on your goals and wider financial position rather than any single asset.
4. Are there more tax-efficient ways to help?
Using your pension is only one possible option. Depending on your circumstances, you could also consider:
- making gifts from surplus income
- using existing cash savings
- gifting investments
- making a family loan to your child rather than gifting outright
- downsizing your home
- providing a mortgage guarantee where appropriate
5. Could your priorities change in the future?
It’s natural to focus on helping your children today, but your own priorities may change over time. You may decide you’d like to retire earlier, travel more, support other family members or simply have greater financial flexibility as your circumstances evolve.
Taking money from your pension now could limit some of those options, so it’s worth considering not only what you need today, but what you might value in the years ahead.
Rather than asking, “Can I use my pension?”, it might be more helpful to ask, “What’s the most appropriate way to help my family while protecting my own future?”
How do the 2027 Inheritance Tax changes affect this decision?
This question has become increasingly important following planned changes to the way pensions are treated for Inheritance Tax.
From 6 April 2027, most unused defined contribution pension funds are expected to form part of an individual’s estate for IHT purposes. Previously, unused defined contribution pensions were generally viewed as one of the most tax-efficient assets to pass on because they usually fell outside an individual’s estate for IHT purposes.
The planned changes don’t necessarily mean you should start taking money from your pension sooner than you originally intended. Instead, they provide another reason to take a step back and consider how your pension fits into your wider financial plan.
When deciding whether to use your pension to help your children, it’s worth thinking about:
- how much you’ll need to fund your own retirement
- the value of your estate
- any other savings or investments you have
- whether leaving an inheritance is one of your priorities
- your family’s wider financial circumstances
For some families, the new rules may mean it makes sense to rethink which assets they use first in retirement. For others, leaving their pension invested could still be the right approach. Ultimately, the best option will depend on your individual circumstances and long-term financial goals.
If you’d like to understand these changes in more detail, see our guide to the 2027 changes to Inheritance Tax on pensions.
Pension withdrawals versus other ways of helping
There’s rarely a single “best” way to help your children financially. The right approach will depend on your retirement plans, the assets you already have and how much flexibility you want to keep. Comparing the options can help you understand the advantages and trade-offs of each.
Option |
Could be worth considering if… |
Main advantages |
Things to think about |
|---|---|---|---|
| Pension withdrawal | You’re on track to meet your retirement income needs and can access your pension without compromising your future lifestyle. | May provide a significant lump sum to help your child buy sooner. | Could trigger Income Tax and reduce the value of your retirement savings. |
| Cash savings | You have an emergency fund and surplus cash available. | Money is usually immediately accessible and won’t affect your pension. | Reduces your cash reserves, which could be needed for unexpected expenses. |
| ISAs | You’ve built up savings in an ISA and want to preserve your pension for later life. | Withdrawals are tax free and funds are readily available. | Reduces the value of investments that could continue growing tax efficiently. |
| Loan to your child | You’d like to help now but expect the money to be repaid in the future. | Allows your child to buy sooner while giving you the opportunity to recover the money later. | It’s sensible to agree and document how and when the loan will be repaid. |
| Downsizing | You were already considering moving to a smaller home. | May release a substantial amount of capital without accessing your pension. | Involves selling your home and may not be practical or desirable for everyone. |
Remember, these options aren’t mutually exclusive. In many cases, combining more than one approach may provide the greatest flexibility while helping you manage tax and protect your retirement income.
Important pension and tax rules to understand
Before accessing your pension, it’s worth being aware of some of the key rules that could affect your decision.
• Tax-free cash
Most people with a defined contribution pension can normally take up to 25% of their pension tax-free, subject to current limits. Any further withdrawals may be subject to Income Tax.
• Income Tax and the MPAA
Apart from any available tax-free cash, pension withdrawals are usually treated as taxable income. Taking a large amount in one tax year could increase your tax bill, while flexibly accessing your pension may also trigger the Money Purchase Annual Allowance (MPAA) if you plan to continue contributing to your pension.
• Inheritance Tax
From April 2027, most unused defined contribution pension funds are expected to form part of an individual’s estate for Inheritance Tax purposes. However, this shouldn’t be the sole reason for accessing your pension, as any decision should also take your retirement income needs into account.
• The seven-year rule
Money gifted to your children may fall under the Potentially Exempt Transfer (PET) rules. In broad terms, if you survive for seven years after making the gift, it will usually fall outside your estate for Inheritance Tax purposes.
• Gifts from surplus income
If you have income that you don’t need to maintain your standard of living, regular gifts from that surplus income may be immediately exempt from Inheritance Tax, provided certain conditions are met.
Every family's financial position is different. The examples below illustrate why the same question can lead to different answers.
Example 1: Parents approaching retirement
David and Helen are both 63 and plan to retire within the next three years.
Their daughter has found her first home and needs an additional £75,000 for the deposit. Their first instinct is to withdraw the full amount from David’s pension.
However, after reviewing their retirement income and the tax implications, they realise that taking the money in one tax year would result in a larger Income Tax bill than expected and reduce the income their pension could provide later in retirement.
Instead, they use a combination of a smaller pension withdrawal and existing savings, allowing them to help their daughter while keeping their retirement plans on track.
Example 2: Looking beyond your pension
Sabrina has accumulated healthy pension savings alongside substantial ISA investments.
Although she could use pension money to help her son buy a house, she decides to use part of her ISA instead. This allows her to support him while preserving more of her pension to provide income and flexibility throughout retirement.
For another family, using pension savings may still be the right approach. The important thing is to consider how each option fits into your wider financial plan, rather than simply choosing the asset that’s easiest to access.
Finding the right balance
If you’re asking, “Can I use my pension to help my children buy a house?”, the answer is often yes. But the more important question is whether it’s the right decision for your own financial future.
Helping your children or grandchildren onto the property ladder can be one of the most rewarding ways to support them, particularly if it allows them to buy a home sooner or with greater financial confidence. However, it’s important that your generosity doesn’t come at the expense of your own long-term financial security.
Every family’s circumstances are different. The right approach will depend on your retirement plans, your wider financial position, the assets you hold and the legacy you hope to leave. The planned changes to the Inheritance Tax treatment of pensions from 2027 may also influence how some families choose to use their pension savings, but they shouldn’t be viewed in isolation.
Get in touch
Taking a step back and considering your finances as a whole can help you make a decision that supports both your children’s future and your own. If you’re unsure which approach is right for you, an independent financial adviser can help you understand the options and build a plan that’s aligned with your long-term goals.
To speak to one of our financial planners, or to arrange an appointment, call 0800 915 0000, or alternatively, use our contact form here.
Frequently asked questions
Can I use my pension to help my child buy a house?
Yes, if you’ve reached the Normal Minimum Pension Age and have a pension that allows flexible access, you may be able to use pension savings to help your child buy a home. However, it’s important to understand the potential impact on your retirement income and tax position before making a withdrawal.
Can I give my child money from my pension tax free?
You may be able to use your available tax-free lump sum to provide a gift. However, any additional pension withdrawals are usually subject to Income Tax.
Will I pay tax if I withdraw money from my pension to help my children?
Possibly. While part of your pension may be available tax-free, additional withdrawals are generally treated as taxable income and could move you into a higher tax band.
Should I use my pension or my ISA to help my children?
There isn’t a single right answer. The most appropriate option depends on your retirement plans, tax position, other available assets and long-term financial objectives.
Is it better to leave my pension invested?
For many people, leaving pension savings invested allows them to continue growing tax efficiently while providing future retirement income. However, the right approach depends on your circumstances and financial goals.
Can grandparents use their pension to help grandchildren buy a house?
Yes. Grandparents may also choose to use pension savings to help grandchildren with a property purchase, although the same considerations around retirement income, taxation and estate planning apply.
Will gifting pension money affect Inheritance Tax?
Potentially. Gifts may fall under the Potentially Exempt Transfer rules or, in some cases, qualify as gifts from surplus income. The planned changes to the Inheritance Tax treatment of pensions from April 2027 may also influence wider estate planning decisions.
How much can I gift my children towards a house deposit?
There is no limit on how much you can gift. However, larger gifts may have tax implications, and it’s important to ensure the gift doesn’t compromise your own financial security.
What are the alternatives to using my pension to help my children?
Alternatives may include using cash savings, ISAs, investments, gifts from surplus income, downsizing your home or providing financial support through a family loan. Which option is most appropriate will depend on your overall financial position.
This is important:
We’ve written this article purely for general educational purposes. It’s not investment advice, or an invitation or inducement for you to invest your money. The information in the article can go out of date over time too – thanks to law and tax rule changes.
Your situation will be unique to you, and that’s why you should always seek personalised advice from a qualified financial adviser before taking any action.
