Bold reality check: Inheritance Tax is edging closer to middle Britain’s wallet as thresholds stay frozen while asset values climb. That’s the core issue you’ll want to understand before you plan your finances. And this is the part most people miss: pensions, once a sheltered haven for passing on wealth, are moving into the IHT net, which could dramatically raise bills for many families.
The Office for Budget Responsibility has upgraded its forecast, now expecting £70.6 billion in Inheritance Tax (IHT) receipts between 2025/26 and 2030/31. That’s £0.7 billion more than projected in the Autumn Budget 2025. The Treasury is receiving more IHT as more estates cross higher value thresholds, and as the pension changes loom, more estates will be exposed to the 40% levy.
Key drivers include:
- Frozen thresholds: As the value of homes and investments rises, more estates cross the IHT threshold even though the limit hasn’t moved.
- Value growth: Property prices and other assets are increasing, pushing thousands of estates into taxable territory.
- Pension reforms: From April 2027, pension pots will fall under Inheritance Tax rules, due to changes announced in the 2024 Budget. This means pensions could no longer offer the same tax-efficient pass‑through that they did before.
- Threshold dynamics: An additional £175,000 allowance (the residence nil rate band) disappears gradually once an estate exceeds £2 million in value, fully phasing out at £2.35 million for individuals and £2.7 million for couples. This compounds the impact on estates that were previously just below the high-threshold line.
Forecasts show a steady rise in annual IHT receipts: from £8.7 billion this year to £14.7 billion by 2030/31. The increases are modest year by year, with £100 million more in 2027/28 and typically £200 million more each year thereafter through 2030/31.
Industry voices emphasize the widening reach of IHT:
- Emma Walker, director at Just Group, notes the Treasury’s growing “lucrative” IHT take and warns that the regime’s changes will push more mid‑income families into IHT territory. She stresses the importance of up-to-date estate valuations to gauge exposure.
- Quilter projects 5,613 estates above £2 million by 2027-28, rising to about 16,000 by 2030/31.
- NFU Mutual’s Sean McCann highlights stark examples: a single person with a £2 million estate plus £500,000 pension could see IHT bills jump from around £600,000 today to about £870,000 from April 2027, especially as pensions enter the net. He warns this could effectively erase the eligible tax-free use of the family home for many beneficiaries.
Practical takeaways for families:
- Start with current valuations of all major assets, including your property, to understand potential IHT exposure.
- Consider professional estate planning advice to optimise how you pass wealth to loved ones and minimize unnecessary taxes.
- Be mindful of the double impact coming from rising house values and pension changes; both can increase future IHT bills.
Controversial angle to consider: Some argue that bringing pensions into IHT could be seen as a reasonable simplification of wealth transfer, while others insist it disproportionately penalizes middle-income households who have saved over a lifetime. How do you view the balance between policy simplification and fairness across different wealth strata? Do you think pensions should remain outside IHT, or is broader reform warranted to reflect modern saving patterns?
If you’d like, I can help you run a simple scenario using your own numbers to estimate whether your estate would face IHT under the 2027 rules, and suggest where adjustments might reduce exposure.
