29 October 2026
In September, the Treasury reported a record-breaking £936 million in Inheritance Tax (IHT), which is an increase of £265 million on the same month last year.
September reflects the steady upward trajectory of IHT receipts, after the previous record was broken in June with a staggering £871 million IHT collected.
A family home, pension and a modest amount of savings may not have generated a liability a few decades ago, but rising asset prices may mean a greater proportion of families may be affected.
What is behind the soaring IHT receipts?
The historic IHT receipts can be explained by a mechanism called ‘fiscal drag.’
IHT is still levied at 40 per cent, but tax thresholds have not risen in proportion with inflation, subjecting more people to tax as asset prices climb.
Moreover, the standard nil-rate band of £325,000 and the residence nil-rate band of £175,000 are frozen and are not due to increase until 2031.
Thresholds that aren’t due to budge for another few years mean the rising value of houses, investments and other assets will pull more estates into the IHT net.
IHT revenue, therefore, has been climbing for several years and will likely follow the same direction until nil-rate thresholds are altered.
While an estate may have been worth £300,000 15 years ago, the same assets may now exceed £500,000 due to property inflation and the growth of investments, creating an IHT liability.
The misconception that IHT is reserved for the highly affluent fringes of society may mean some families are exposed without realising.
Consequently, it is important to regularly review estate plans with a financial professional to evaluate the potential IHT bill for beneficiaries.
How pension wealth may affect IHT liabilities from April 2027
From 6 April 2027, unspent pension funds and death benefits will be included in the value of a taxable estate.
For married couples living in the UK, the first death of a spouse still allows estates to be transferred to their partner without inheritance tax to pay.
The individual nil-rate allowance is also transferred to the surviving spouse, which can result in an IHT-free allowance of up to £650,000.
If a qualifying residence is also passed on to the next generation, the additional £175,000 nil-rate band may push IHT allowances up to a maximum of £1 million.
While unspent pensions can also be passed to a spouse without tax, the leftover funds from a second death might then be subject to the 40 per cent rate.
For example, if both partners have a large share of their pension leftover which is then added, alongside other assets, to an estate, there is a greater risk of an IHT liability.
As fiscal drag alone can tip families over the nil-rate band, the addition of pension funds to an estate is likely to compound potential IHT exposure for families.
Speak to an accountant
While families may underestimate the value of their assets, believing their combined value will not create an IHT bill, this may not be the case.
Our experts can review the value of your estate, factoring in property, investments and pensions, to calculate the potential IHT exposure.
Where outdated advice may have promoted saving pensions and spending other assets to minimise IHT, we can advise on strategies that take heed of the addition of pensions to estates.
Speaking to a professional at an early stage can allow you to benefit from the estate planning opportunities available, minimising the IHT liability for beneficiaries.
Do you know your Inheritance Tax exposure? Reach out to our accountants for expert guidance on tax planning strategies.
