Frozen Inheritance Tax Thresholds: Why More Families Are Being Caught

Inheritance tax thresholds have remained unchanged for years, but rising asset values mean more families are now being drawn into the tax net — often without realising it.

Key Insight

With inheritance tax thresholds frozen and asset values rising, more families are becoming liable for inheritance tax — making proactive planning essential to protect what is passed on.

Inheritance tax (IHT) has long been a concern for families with growing estates. The nil-rate band (the portion of your estate that’s tax-free) has been frozen at £325,000 since 2009. Similarly, the residence nil-rate band—designed to make it easier to pass on the family home—has been held at £175,000. These bands are now set to remain frozen until at least 2028.

In the meantime, property values and investments have risen steadily. Many families who never considered themselves wealthy enough for IHT now find their estates creeping into taxable territory. Inheritance tax is charged at 40% on the portion of an estate above these thresholds. If left unplanned, this could significantly reduce what your beneficiaries receive.

As a result, there are practical steps families should consider. First, regular estate reviews are crucial. What may not have been an issue five years ago could now mean a tax bill. Families should consider making lifetime gifts, which—if done at least seven years before death—can fall outside the taxable estate. Additionally, trusts can help shelter assets from IHT while still allowing flexibility and control.

Business relief and agricultural relief remain valuable tools for those who own qualifying assets. Planning ahead for business owners or those with farmland can ensure that these valuable reliefs are fully utilised.

In summary, with inheritance tax thresholds frozen and asset values rising, proactive planning is more essential than ever. Reviewing your estate plan now could save your family a significant tax burden later.