How Rising Inheritance Tax Impact Families and What You Can Do

Inheritance Tax (IHT) receipts in the UK have surged, reaching £6.6 billion in the first nine months of the 2025/26 tax year. This is an important development, with more families affected by rising asset prices and frozen tax thresholds. As these trends continue, rising inheritance tax collections are expected to exceed last year’s record of £8.2 billion, with projections indicating IHT receipts could reach £9.1 billion by the end of the current fiscal year.

Why Is Inheritance Tax on the Rise?

Several factors are contributing to this sharp rise in IHT receipts:

• Frozen Tax Thresholds: While asset values continue to increase, the IHT thresholds have remained unchanged. As a result, more estates are crossing the threshold and becoming liable for tax.
  
• Soaring Asset Values: Property prices and investments have hit record highs, meaning that estates with significant wealth are increasingly subject to IHT.
  
• Pensions Will Be Included in IHT from 2027: Starting in April 2027, pensions will be included in IHT calculations, further expanding the number of families affected by this tax.

The government’s Office for Budget Responsibility (OBR) predicts IHT receipts will continue to rise, surpassing £14 billion by 2029/30. The ongoing freeze in tax thresholds and the upward pressure from rising asset prices make this increase inevitable.

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What Changes Are Coming to Inheritance Tax?

The IHT landscape is already undergoing changes, and we anticipate more in the upcoming years:

• Pensions in IHT Calculations: From 2027, pensions will be included in an individual’s estate for IHT purposes. This could significantly increase IHT liabilities, especially for those with large pension pots.
  
• Cap on Reliefs: The government has introduced caps on agricultural and business property reliefs, which could impact business owners and farmers. However, an increase in the 100% agricultural relief threshold to £2.5 million (up from £1 million) starting in 2026 may offer some relief.
  
• Mansion Tax: The introduction of the mansion tax in April 2028 may slow the pace of IHT receipts growth, as it could lead to behavioural shifts in the housing market.

How Can You Reduce Your Inheritance Tax Bill?

There are several strategies you can use to minimise your IHT liability:

• Leave Assets to a Spouse or Charity: Assets inherited by a spouse or civil partner are exempt from IHT, and charitable donations can reduce your liability.
  
• Use the Seven-Year Rule: Gifts made more than seven years before your death are generally exempt from IHT. This allows you to reduce the value of your estate while you are still alive.
  
• Business Property Relief (BPR): Investments in unlisted companies can qualify for BPR and be exempt from IHT after two years. From 2026, this relief will be capped at £1 million.
  
• Alternative Investment Market ISAs: These are currently exempt from IHT, though they will be subject to a 20% tax from 2026.

Strategic Estate Planning Is Key

In light of these changes, individuals should regularly review their estate plans to ensure they are maximising the available reliefs. The introduction of new rules, especially around pensions, means now is the time to reassess your strategy.

Here are a few steps you can take to ensure efficient estate management:

• Get an Up-to-Date Estate Valuation: Understanding the value of your assets, including property, investments, and pensions, is crucial in assessing your IHT liability.
  
• Plan Early: As IHT policies evolve, it’s important to plan well in advance, especially with the upcoming changes to pension rules in 2027.
  
• Avoid Panic Planning: Take the time to plan your estate carefully. Rushed gifts or withdrawals may lead to unexpected tax consequences.

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Call Anytime 0203 883 4777

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How We Help Deal With the Rising Inheritance Tax in UK

Apex Accountants offer expert advice on inheritance tax planning to help you navigate these complexities and reduce your inheritance tax bill. Our services include:

• Estate Valuations: We help you assess the value of your estate and provide a clear picture of your potential IHT liability.
  
• Tax-Efficient Estate Planning: We guide you through the process of gifting, charitable donations, and business reliefs to reduce your IHT exposure.
  
• Pension and Asset Management: With upcoming changes to pension rules, we offer strategic advice to ensure your retirement funds are managed efficiently.
  
• Ongoing Estate Reviews: We recommend regular reviews of your estate plan to adapt to changing laws and asset values.
  

If you’re concerned about your tax liability and the inheritance tax impact on your estate, don’t wait for the new rules to take effect. Contact Apex Accountants today to discuss how we can help you create a tax-efficient estate plan. Let us guide you in passing on your wealth to your loved ones with minimal tax impact.

By planning now, you can ensure that your assets are preserved for future generations, without unnecessary tax liabilities.