In light of the recent announcement regarding the significant increase in inheritance tax (IHT) receipts, financial experts are sounding alarms over the ramifications of these changes for families in the UK. Inheritance tax receipts have soared by 11.8% in the past year, amounting to an impressive £0.8 billion increase, raising concerns among industry professionals about the increasing burden on ordinary families.
Andrew Zanelli, head of technical engagement at Aberdeen Adviser, remarked on this trend, stating that "IHT continues to bring in more money than ever. And the plan to bring pension pots into the fold, coupled with frozen thresholds, mean more and more people could face a tax charge." He highlighted a growing phenomenon where individuals are making hasty pension withdrawals, driven by fears of potential IHT liabilities.
According to Nicholas Hyett, an investment manager at Wealth Club, the situation is expected to get worse. He estimated that nearly 10% of estates will pay death duties by 2030, a dramatic increase attributed to rising house prices and a recent freeze on allowances that has lasted for over 15 years. "While we don’t expect to see any more changes to Inheritance Tax announced at next week’s Spring Statement," Hyett told reporters, "the changes announced in the autumn are yet to kick in and will increase the inheritance tax take substantially." He noted that the main IHT allowance now frozen at £325,000 could trap more middle-income earners as property values rise, leading to increased estate tax pressures.
Frozen thresholds are expanding financial liabilities for an increasing number of families. Richard Bate, head of private wealth at national law firm Weightmans, said, "Considering where average property values are right now, relatively modest estates, often built up by middle-income savers, have a potentially significant tax bill to consider." He brought attention to the fact that with key reliefs being restricted, it has become increasingly difficult to navigate the tax landscape without strategic planning.
Moreover, Jonathan Halberda from Wesleyan Financial Services noted a significant cultural shift in how people are now approaching legacy planning. There’s a heightened awareness around the implications of IHT, especially with the impending changes that will include pensions in the IHT calculation from April 2027. “The reality is that IHT is affecting more estates than ever before,” he pointed out, underscoring the importance of taking proactive measures.
As Simon Martin from Utmost Wealth Solutions highlighted, Inheritance Tax has already racked up another record tax take for the fiscal year 2024/25. "The freeze in the IHT thresholds and rising asset prices are the likely drivers of this fiscal boost for the Treasury," he noted. Martin anticipates that the changes set to come into effect from April 2026 will continue to deliver increasing revenue to the Chancellor. This suggests that the general public will continue to be unduly burdened by IHT in the years to come.
The potential impact of the new IHT directives extends beyond just financial implications; it could also reshape estate planning strategies. Shaun Moore, tax and financial planning expert at Quilter, observed that many families are now faced with the harsh reality of double taxation and the requirement to leverage existing assets to settle IHT bills. “With the nil-rate band (£325,000) and residence nil-rate band (£175,000) frozen until 2030, the government has ensured that more estates are pulled into paying this deeply unpopular tax,” Moore said.
Illustrating the challenges posed by the new policy, the case of Emily, a hypothetical 73-year-old with a defined contribution pension worth £700,000, reveals the stakes. Currently, her estate would owe £190,000 in IHT, but once the pension is included in the IHT calculation come 2027, this bill could escalate to £470,000, thus showcasing the urgent need for estate planning. As Anick Sharma from Videre Financial Planning noted, the looming tax ramifications are compelling many older individuals to consider spending their pension funds earlier to mitigate the impact of IHT. “Why leave behind wealth that will be significantly eroded by tax when it could be enjoyed in the present?” he said.
With changes such as restrictions on Agricultural Property Relief and Business Relief coming into effect in April 2026, middle-income families could find themselves in increasingly precarious positions. Stephen Lowe, Director at Just Group, pointed out that the ongoing freeze on the key thresholds coupled with rising property values directly correlates to the increased inheritance tax receipts. He urged individuals to pay close attention to their estate valuations to ascertain their potential IHT exposure.
The recent announcements signify a paradigm shift in wealth inheritance. With government estimates suggesting that around 213,000 estates may incorporate "inheritable pension wealth" by 2027-28, 10,500 could face an IHT bill for the first time. This growing figure speaks volumes regarding the financial implications for average households. Financial planners are emphasizing the need for timely action and strategic estate planning to navigate this increasingly complex landscape.
With the introduction of new gifting rules and allowances, individuals seeking to navigate their inheritance liability have new strategies at their disposal. Alice Haine, a personal finance analyst, states that one option includes the ability to give away up to £3,000 annually in tax-free gifts, which can be a useful way to reduce one’s estate value gradually.
As families grapple with these changes, financial debates will likely intensify. The interplay between wealth, taxation, and the need for prudent financial planning represents critical conversations that many families will have to navigate in a rapidly evolving financial landscape.
