Why More Families Are Paying Inheritance Tax (And What You Can Do About It)

What's Actually Happening: Fiscal Drag

Inheritance tax used to be something only the very wealthy needed to think about. That's no longer true. More UK families than ever are being caught by it — not because they've become significantly richer, but because of a combination of frozen thresholds and rising property prices that has quietly pushed ordinary estates over the limit.

IHT receipts hit £7.7 billion between April 2025 and February 2026 alone. The OBR forecasts a record £8.7 billion for the full 2025/26 year. The nil-rate band has been frozen at £325,000 since 2009 — unchanged for over 15 years.

The core issue is fiscal drag: a mechanism where taxes affect more people over time, even without the government formally raising rates. Property values across the UK have continued rising while the threshold has stayed fixed. HMRC collects tax on the excess at 40%.

Who Is Being Caught

The typical profile of an estate now subject to IHT has shifted. The main driver today is residential property — particularly homes bought decades ago in areas that have seen significant price growth.

A family home purchased in the 1980s for £80,000 in many parts of England is now worth £400,000–600,000. Combined with even modest savings, that can easily push an estate above the threshold.

The residential nil-rate band (an additional £175,000 if a home is left to children or grandchildren) takes the effective threshold to £500,000 per person — or £1 million for a couple. But this tapers away for estates worth over £2 million, and only applies to direct descendants.

Three Practical Steps

1. Know What Your Estate Is Actually Worth

Most people significantly underestimate the value of their estate. They overlook the current market value of their home, life insurance payouts (unless written in trust, these form part of the estate), pension lump sums, and personal valuables. The first step is to get an accurate picture.

2. Track Your Total Financial Picture

Apps like Money Dashboard connect to your UK bank accounts and savings accounts via open banking and give you a single view of all your assets. You can't plan around a number you don't know.

3. Start Planning Early — Options Narrow Over Time

The earlier you begin thinking about inheritance tax, the more options you have. Common strategies include:

• Gifting: You can give away up to £3,000 per year free of IHT. Larger gifts also qualify if you survive 7 years after making them
• Pensions: Pension pots are generally outside your estate for IHT purposes (though rules are changing from 2027)
• Life insurance written in trust: A policy written in trust pays out directly to beneficiaries without forming part of the estate
• Business and agricultural reliefs: If applicable, these can substantially reduce the taxable value

Key Facts at a Glance

• IHT receipts: £7.7 billion (Apr 2025–Feb 2026)
• Nil-rate band: £325,000 — frozen since 2009, extended to 2031
• Residential nil-rate band: additional £175,000 for homes left to direct descendants
• UK house prices rose 25%+ between 2019 and 2024
• Projected to affect 1 in 10 families by 2030

The Bottom Line

Inheritance tax is no longer a niche concern for the wealthy. Frozen thresholds, rising property prices, and over 15 years of fiscal drag mean that millions of ordinary UK families now face a potential IHT bill — often without realising it.

The response isn't panic. It's awareness. Understand what your estate is worth, track your finances clearly, and start planning as early as you can. The options available to you depend heavily on how much time you have.