The future of Inheritance Tax

“In this world nothing can be said to be certain, except for death and taxes.” – Benjamin Franklin 

I have heard this saying used extensively over the years – a tax colleague of mine many years ago was certain to include this within his presentations to the general amusement of attendees. With this in mind, I have focused on tax in my article this month. 

Since Wednesday the 6th of November, when the Chancellor stood up in the House of Commons at 12:30pm UK time, we witnessed the forthcoming tax changes being announced. 

 For months leading up to the Budget there had been plenty of rumours circulating about potential changes. According to an Ipsos poll prior to the Budget, 3 in 5 people in the UK stated ‘they felt anxious about how the Budget will affect their finances’.(1)

In the aftermath of all this speculation, we should be clear on what has actually changed. Rather than examine the extensive spectrum of UK taxes, I will focus on one tax. In my view from years of planning this is the most loathed UK tax amongst clients, namely Inheritance Tax (IHT). 

Nil Rate Band

Firstly, the nil rate band will remain fixed at GBP325K up to April 2031. This is the value of your estate which can be passed on without incurring an Inheritance Tax charge. This applies on a global basis for individuals considered to be UK domiciled and on UK situs assets for those who are not domiciled in the UK. 

Let’s examine this impact. 

The Office for National Statistics estimates net property wealth made up the largest proportion of wealth in the UK at 40% with residential property representing around GBP8.2 trillion of value (gross rather than net value). This asset class is closely followed by private pensions at 35%.(2)

In July 2025, Zoopla indicated UK homes had risen in value by GBP56K over the previous 5 years which equated to a gain of circa 20%. (3)

With the average value of property reaching GBP269,862 by October of last year, there isn’t much headroom before the GBP325K nil rate band is reached – although this doesn’t factor in mortgage exposure. (4) A further 20% increase in property values between now and 2031 would result in UK property values on average almost matching the nil rate band at circa GBP324K, although as mentioned this is total rather than net values. 

The UK Government forecasts that 90% of estates will still have no IHT liability in each of the next 5 years leading up to 2031, however this requires some examination as it doesn’t indicate the increase in estates exposed to IHT. (5)

In 2022 to 2023 UK IHT liabilities were GBP6.7 billion with the number of estates paying IHT amounting to 4.62% (31,500 estates) and Casfin believe the number of estates paying IHT by 2031 will more than double to 63,100. (6)

There was in my view another material announcement.

Pension funds 

From April 2027, most unused UK pension funds will be included within an individual’s estate. My earlier quoted statistic indicated around 35% of wealth in the UK sits within pension funds, so adding this to the 40% estimated to be held in net property will result in an expansion of scope for Inheritance Tax reach from April 2027. 

Previously, UK pensions had unquestionably been used as Inheritance Tax shelters with the government website stating, ‘pension schemes have been increasingly used and marketed as a tax planning tool to transfer wealth without an Inheritance Tax charge, rather than for funding retirement’. 

There were other changes with Business and Agricultural Relief being reduced to GBP1M before being raised to GBP2.5M on the 23rd of December. (7) 

The question the last two UK Budgets present is how to plan for Inheritance Tax factoring in the main changes. Each person’s situation can and will likely be different and unique but there are avenues which can still be explored. 

Amongst the many options to consider are: 

• A Wills – it is crucial to ensure your Will represents your intentions and current tax legislation. 
• A Gifting – you can still gift up to GBP3K per annum with an immediate exemption from IHT with additional capital gifts exempt from consideration once you exceed the 7-year period for taper relief. This would need careful planning to ensure you still take care of your future income needs. 
• A Small gift exemptions – gifting GBP250 to a number of individuals each year 
• A Using life insurance to cover the IHT cost – this doesn’t remove the tax but provides a funding mechanism with a clear premium being paid to ensure the tax bill can be paid in whole or part. 
• A Review the approach you take to your UK pensions if these were a key part of your IHT strategy as this will be affected from April 2027. 
• A Consider rebalancing the weighting of assets between you and your spouse to use allowances and exemptions where this is appropriate 
• A If you decide to gift at least 10% of your estate to charity your IHT rate will reduce from 40% to 36%. 
• A Prior to all of this ensure you have clarity on your Long-Term Resident position. (8) 

Inheritance Tax is a complex area and it is important to have a clear and detailed discussion about your financial affairs with a qualified adviser. If you would like to speak to a member of our team, please do get in touch. 

1. Source – ipsos.com 

2. Source – ons.gov.uk 

3. Source – Zoopla.co.uk 

4. Source – Landregistry.data.gov.uk 

5. Source – gov.co.uk 

6. Source -casfin.co.uk 

7. Source – gov.co.uk 

8. Source – gov.co.uk