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HMRC figures show that IHT receipts reached £8.2 billion in the 2024/25 tax year, which is another record, and a trend that shows no sign of slowing down.
With thresholds frozen until at least 2031 and house prices significantly higher than they were a decade ago, many families who never expected to face an inheritance tax bill are now finding themselves firmly in scope.
It’s a situation we’re seeing more and more in conversations with our clients as awareness of upcoming changes grows and now is a good chance to take some action.
Why are more families affected?
Inheritance tax has long carried a reputation as a ‘wealth tax’, but the reality today is rather different. The nil-rate band (the threshold below which no IHT is due) has been fixed at £325,000 since 2009. Add to that rising property values across much of the UK, and a growing number of ordinary families are finding that their estates exceed the threshold without any formal wealth planning.
The residence nil-rate band (an additional allowance of up to £175,000 per person when passing a main home to direct descendants 2026/27) helps, but it tapers away for estates worth more than £2 million. – Most unused pension funds and death benefits will be brought into the IHT net from April 2027 following the Autumn 2024 Budget and is a bit of a ticking time bomb for families who are not planning.
For many people, what feels like a modest estate — a family home, some savings, perhaps a pension pot — can attract a 40% tax charge on everything above the standard IHT threshold.
We regularly speak with clients who assume IHT planning is only for the very wealthy, or that it's too complicated to tackle...Dan Payne, Chartered Financial Planner
“We regularly speak with clients who assume IHT planning is only for the very wealthy, or that it’s too complicated to tackle,” says Dan Payne, Chartered Financial Planner at Wren Sterling. “The reality is that some of the most effective IHT strategies are surprisingly straightforward, such as gifting, writing policies in trust, and making use of allowances that many people simply aren’t aware of.
“The biggest mistake we see is leaving it too late. A conversation with a financial planner today could save your family thousands of pounds in the future.”
A simple IHT action plan
You don’t need to have everything resolved overnight, but taking these steps is a strong start:
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1. Know where you stand
Start with a straightforward estate valuation. Add up the value of your home (or share of it), savings, other property, businesses, possessions, assets, investments, life insurance policies not written in trust, and pension (from 2027) minus mortgages, debts or loans. If the total is approaching or above £325,000 it’s worth seeking advice.
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2. Making a Will
Making a Will allows you to control who your estate goes to and can allow you to utilise any IHT tax allowances and exemptions you may have.
If there is no Will, your estate is manged under the rules of intestacy, which may not align to your wishes or any IHT planning.
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3. Make use of your gifting allowances every year
Each person can give away up to £3,000 per tax year free of IHT (the ‘annual exemption’). Or £6,000 if you didn’t use last year’s allowance. Separate to the £3,000, you can also gift up to £250 per person each year and give gifts for a wedding or civil partnership (up to £5,000 to a child, £2,500 to a grandchild or £1,000 for anyone else).
You can also give unlimited gifts out of regular monthly surplus income with no IHT implications, provided they don’t affect your own standard of living. These allowances are use-it-or-lose-it.
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4. Review your pension nominations
Pension nominations don’t automatically follow your Will. Completing a nomination (also known as an expression of wish) helps guide the pension scheme trustees when deciding who death benefits should be paid to. This is especially important if those benefits are to people who are not dependents. Make sure your nominated beneficiaries are up to date and take advice on how the forthcoming 2027 pension changes may affect your overall Estate Planning.
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5. Think about Lasting Powers of Attorney
Not directly an IHT mitigation tool, but a crucial part of the picture. If you lose capacity before your planning is complete, your family may be unable to act on your wishes.
Having an LPA in place protects everyone. There are two types of LPA; one for making financial decisions and another for making health and care decisions. You can set up LPAs for both types of decisions.