Inheritance Tax (IHT) is changing, but not always in ways that immediately get our attention. While the tax rate remains unchanged, a combination of frozen thresholds and new rules means that more UK families are likely to be affected in the coming years. As property values and personal wealth increase, estates that would not previously have faced a tax charge may now fall within scope.
If you own a home or have built up savings, this is a good time to take stock of your position and consider whether any action is needed.
Why this matters more than ever
There are several reasons why IHT is becoming relevant to more families. Although the 40% tax rate has remained the same for decades, the more significant issue is that the main tax-free threshold has been fixed at £325,000 since 2009 and is expected to remain at this level until at least 2030.
At the same time, house prices and asset values have continued to rise, particularly in many parts of the UK. This long freeze effectively brings more estates into the IHT net each year. In practical terms, families who once felt comfortably below the threshold may now find themselves closer to it than expected.
What you need to know
The current system still provides a number of allowances, but these have not kept pace with inflation or property growth. Every individual has a standard nil-rate band of £325,000. In addition, there is a residence nil-rate band of £175,000 if a main home is passed to direct descendants, such as children or grandchildren. For married couples and civil partners, these allowances can be combined, meaning that up to £1 million may pass free of IHT in certain circumstances.
Although these figures appear generous, they can be quickly exceeded in areas where property values are high or where individuals have accumulated pensions and investments over time.
One of the most significant upcoming changes relates to pensions. From April 2027, unused pension funds are expected to form part of an individual’s estate for IHT purposes. Historically, pensions have been treated separately and often used as a tax-efficient way to pass on wealth. Bringing them into the IHT calculation could increase exposure for many families, particularly those who have relied on pensions as a key part of their estate planning.
Important changes for business owners and those with agricultural assets came into effect in April 2026. These reliefs have traditionally played a major role in allowing family businesses and farms to pass between generations without significant tax charges. However, Business Property Relief and Agricultural Property Relief are now limited and capped at £2.5 million, per individual for 100% relief. Unused portions of the allowance can be transferred to a surviving spouse or civil partner, allowing couples to claim up to £5 million at 100% relief. If you own qualifying assets over and above this threshold, then the relief is reduced to 50% adversely affecting many business and farm owners.
For international families, the rules have also evolved. From April 2025, IHT moved to a residence-based system rather than one based on domicile. This change brought more overseas assets within the scope of UK inheritance tax for individuals who are considered UK residents. For those with cross-border ties, this can alter how their estate is structured and taxed.
What should you do now
Although the rules are becoming more complex, there are practical steps that can be taken. Reviewing your Will is an important starting point, ensuring that it reflects your current wishes and takes advantage of available allowances. It is also helpful to understand the overall value of your estate, including property, savings, investments and pensions, so that you have a clear picture of any potential exposure.
Making full use of allowances between spouses and civil partners can help ensure that tax is minimised over time. In addition, some people choose to make lifetime gifts, which, if structured correctly and made early enough, can reduce the value of an estate for IHT purposes. However, gifting rules can be complex, and professional advice is essential before taking action.
Given the number of planned changes, seeking tailored advice has become increasingly important. A clear understanding of both current rules and future developments can help you make informed decisions.
A practical takeaway
Inheritance Tax is no longer just an issue for the very wealthy. With thresholds frozen and reforms underway, it is becoming a consideration for many homeowners and families who may not have previously expected to be affected. Taking time to review your position now can provide greater certainty and help avoid unexpected outcomes later.
How we can help
We provide clear and practical guidance to help you understand your potential exposure to IHT and explore suitable planning options. Our aim is to help you put the right structures in place and protect your estate for future generations. If you would like to review your position or discuss your options, we would be pleased to assist.