A New Record — and No Sign of Slowing Down
In the twelve months to March 2026, HM Revenue & Customs collected £8.5 billion in inheritance tax (IHT). That figure is £200 million more than the previous year and marks the highest annual IHT haul in the history of the tax. The Office for Budget Responsibility (OBR) forecasts that receipts will climb further still — to an estimated £9.1 billion in 2025-26 and beyond £14 billion by the end of the decade.
If those projections seem dramatic, consider this: twenty years ago the annual IHT take was £3.3 billion. In real terms the tax has more than doubled, yet the thresholds that determine who pays it have barely moved.
Why the Numbers Keep Rising
Frozen Thresholds in a World of Rising Values
The nil-rate band (NRB) has been frozen at £325,000 since April 2009. The residence nil-rate band (RNRB) has been fixed at £175,000 since April 2020. Between them a married couple or civil partners can shelter up to £1 million — but only if they leave a qualifying residence to direct descendants and the estate is worth less than £2 million.
Finance Act 2025 extended the freeze through to the end of 2030-31. That is more than two decades without an increase in the main threshold. Over the same period the average UK house price has risen from roughly £160,000 to well over £290,000, according to the Office for National Statistics. In London and the South East, typical family homes now sit comfortably above the NRB on their own.
The result is a form of fiscal drag. Estates that would once have passed entirely tax-free are now being pulled into the IHT net — not because the owners are especially wealthy but because the thresholds have failed to keep pace with property values, pension pots and investment growth.
More Estates, Higher Bills
HMRC data shows that the number of estates paying IHT has been climbing year on year. In the 2021-22 tax year (the most recent for which full data is available), around 27,800 estates were liable — roughly 4.4 per cent of all UK deaths. That proportion is expected to rise sharply as the frozen thresholds continue to bite.
The average IHT bill now exceeds £200,000. For families who have not planned ahead, that sum often has to be found before probate is granted, which means selling property or borrowing against the estate before any assets can be distributed.
The Pension Factor
From 6 April 2027, unused pension funds and most pension death benefits will be brought within the scope of IHT for the first time. Until now, defined contribution pensions have sat outside the estate for IHT purposes, making them one of the most tax-efficient vehicles for passing wealth to the next generation.
Once pensions are included, many estates that currently fall below the threshold will be tipped above it. For business owners who have built significant pension pots alongside company value, the combined exposure could be substantial.
What the Frozen Thresholds Really Mean in Practice
Consider a couple who own a family home worth £450,000, have ISA savings of £150,000, a small buy-to-let property worth £250,000, and combined pension pots of £400,000. Today, their combined estate is worth approximately £1.25 million. Under current rules (with pensions excluded), their estate is around £850,000 — well within the £1 million combined allowance for a married couple leaving their home to children.
From April 2027, once the pension pots are added, the estate rises to £1.25 million. The excess above the combined allowance of £1 million — roughly £250,000 — would be taxed at 40 per cent, producing a bill of £100,000. That is a six-figure liability that simply did not exist before the rule change, on an estate that most people would not consider exceptionally large.
Business Property and Agricultural Property
The April 2026 changes to Business Property Relief (BPR) and Agricultural Property Relief (APR) add another layer. The first £2.5 million of combined qualifying business and agricultural assets continues to attract 100 per cent relief. Above that threshold, relief drops to 50 per cent, meaning the effective IHT rate on the excess is 20 per cent rather than zero.
For business owners whose companies are valued at more than £2.5 million — and that includes a great many SMEs — the change creates a new planning imperative. Previously, a qualifying business could pass entirely free of IHT. Now, the owner of a £3 million business faces a potential liability of £400,000 on the excess above £2.5 million.
What Families Can Do Now
1. Get a Proper Estate Valuation
The starting point is understanding where you stand. Many families have a rough idea of their net worth but have never calculated their potential IHT exposure. A thorough valuation — including property, investments, pensions, business interests and personal assets — is essential.
2. Use Your Annual Exemptions
Every individual can give away £3,000 per tax year under the annual exemption without it counting towards their estate. Gifts of up to £250 per person per year are also exempt, as are gifts out of normal expenditure (provided the donor can demonstrate that the gifts come from surplus income and do not reduce their standard of living).
3. Consider Lifetime Gifts and the Seven-Year Rule
Potentially exempt transfers (PETs) fall out of the estate entirely if the donor survives for seven years. Taper relief reduces the IHT charge on gifts made between three and seven years before death. For those with sufficient assets, a structured gifting programme can significantly reduce the eventual estate.
4. Review Trust Structures
Trusts remain one of the most effective tools for managing IHT exposure, protecting assets, and ensuring wealth passes to the right people at the right time. Discretionary trusts, interest in possession trusts, and family investment companies each serve different purposes and carry different tax implications.
5. Plan for the Pension Changes
With pensions entering the IHT net from April 2027, it may be worth reviewing how pension benefits are structured. Drawdown strategies, nomination forms, and the interaction between pension death benefits and other estate assets all need careful consideration.
6. Take Professional Advice
IHT planning is complex, and the consequences of getting it wrong can be expensive. Legislation changes regularly, reliefs have conditions attached, and what works for one family may be entirely inappropriate for another. Professional estate planning advice is not a luxury — it is the price of clarity.
The Bottom Line
The £8.5 billion HMRC collected in IHT last year is not an anomaly. It is the result of deliberate policy choices — frozen thresholds, expanded scope, reduced reliefs — that are pulling more families into the tax net every year. The OBR’s forecast of £14 billion by the end of the decade is not a worst-case scenario; it is the central projection.
The families who fare best will be those who plan early, review regularly, and take professional advice before the tax bill arrives. Waiting until probate is too late.
If you would like to understand your family’s inheritance tax exposure and explore the options available to you, get in touch with The Legacy Wills Company today.