Inheritance tax (IHT) has become one of the fastest-growing sources of revenue for the UK Government, with record receipts highlighting a trend that is affecting an increasing number of families.
Traditionally viewed as a tax for the wealthy, inheritance tax is now impacting many individuals who simply own a family home, have accumulated pension wealth, or have built up savings and investments over a lifetime. With further legislative changes already scheduled and tax thresholds remaining frozen, the number of estates facing an inheritance tax liability is expected to continue growing.
For families in the UK and British expatriates living overseas, understanding why inheritance tax receipts are increasing and taking appropriate action has never been more important.
Record Inheritance Tax Receipts
According to HM Revenue & Customs, inheritance tax receipts reached £8.5 billion during the 2025/26 tax year, up from £8.3 billion the previous year and significantly higher than the approximately £5.1 billion collected during the 2019/20 tax year.
The upward trend has been consistent for many years, but recent government forecasts suggest inheritance tax revenues could rise substantially further by the end of the decade.
The increase is not necessarily because more people are becoming exceptionally wealthy. Instead, a combination of frozen tax allowances, rising asset values, changes to reliefs and forthcoming pension reforms are bringing more estates into the inheritance tax net.
Frozen Thresholds and Fiscal Drag
One of the biggest contributors to rising inheritance tax receipts is fiscal drag.
The inheritance tax nil-rate band has remained fixed at £325,000 since 2009. The residence nil-rate band, which can provide additional relief when passing a main residence to direct descendants, has also been frozen for several years.
Meanwhile, property prices and investment values have continued to increase.
As asset values rise but tax thresholds remain unchanged, more estates exceed available allowances and become liable to inheritance tax. This means families who may not consider themselves wealthy can still face significant tax bills when wealth is passed to the next generation.
For married couples and civil partners, allowances can often be combined, potentially allowing up to £1 million to pass free of inheritance tax. However, larger estates can see valuable reliefs reduced or removed entirely through tapering rules.
Property Wealth Is Driving More Estates Into Scope
Property ownership remains one of the most significant reasons more families are facing inheritance tax.
Many homeowners purchased their properties decades ago when values were considerably lower. In parts of southern England and other desirable regions, long-term house price growth has dramatically increased estate values.
A family home that was once comfortably below inheritance tax thresholds may now represent a substantial proportion of an estate. When combined with pensions, investments, savings and other assets, inheritance tax exposure can increase rapidly.
This is particularly relevant for individuals who have accumulated wealth gradually over many years rather than through high earnings or business ownership.
Changes to Business Property Relief
Recent reforms have also altered some of the traditional inheritance tax planning tools available to investors and business owners.
Business Property Relief (BPR) continues to offer valuable inheritance tax advantages, but recent changes have introduced new limits. While 100% relief remains available in certain circumstances, it is now capped, with reduced relief applying above specified thresholds.
In addition, AIM-listed shares, which have long been used as part of inheritance tax mitigation strategies, now receive reduced relief compared with previous rules.
For individuals who have relied on these arrangements as part of their estate planning strategy, a review may be appropriate to understand how legislative changes could affect future outcomes.
Pension Changes Could Significantly Increase Future Tax Bills
Perhaps the most significant inheritance tax change on the horizon is the planned inclusion of most unused pension funds within an individual’s estate for inheritance tax purposes from April 2027.
Historically, pensions have often been viewed as an efficient way to pass wealth between generations. For many families, pension assets represent one of the largest components of their overall wealth.
The inclusion of pension funds within the inheritance tax calculation could substantially increase the value of taxable estates and bring many more families into scope.
For those already approaching inheritance tax thresholds, the impact could be considerable. It may also affect wider retirement planning decisions, including how pension benefits are drawn and how other assets are used during retirement.
Why Inheritance Tax Planning Matters
Inheritance tax is currently charged at 40% on the value of an estate above available allowances.
Without appropriate planning, this can significantly reduce the amount passed on to spouses, children, grandchildren and other beneficiaries.
Importantly, inheritance tax planning is not solely about reducing tax. It is also about ensuring wealth is distributed according to your wishes, protecting family members, and making the administration of an estate as straightforward as possible.
A lack of planning can lead to unnecessary complexity, delays during probate and potentially avoidable tax liabilities.
What Can Families Do?
While inheritance tax legislation has become increasingly complex, there remain a number of planning opportunities available.
Review Your Estate Regularly
Many estate plans are created and then forgotten.
Regular reviews can help ensure wills, beneficiary nominations, asset ownership structures and wider estate arrangements remain aligned with current legislation and family circumstances.
Consider Lifetime Gifting
Making gifts during your lifetime can reduce the value of an estate for inheritance tax purposes.
A range of exemptions and allowances are available, including annual gifting allowances, gifts from surplus income and potentially exempt transfers.
However, gifting strategies should always be considered carefully to avoid compromising long-term financial security.
Explore Trust Planning
Trusts can still play an important role in estate planning for some families.
When used appropriately, they may help protect assets, support vulnerable beneficiaries and provide greater control over how wealth is distributed.
Given the complexity of trust legislation, professional advice is usually essential.
Review Pension and Retirement Strategies
With pensions expected to form part of inheritance tax calculations from 2027, retirement planning and estate planning are becoming increasingly interconnected.
Reviewing pension arrangements, beneficiary nominations and retirement income strategies may help identify opportunities to improve outcomes for future generations.
Take a Cross-Border Approach
For British expatriates, inheritance tax planning often requires consideration of multiple jurisdictions.
The UK’s move to a residence-based inheritance tax system means that some expatriates may remain exposed to UK inheritance tax for several years after leaving the country. At the same time, local succession laws and taxes in their country of residence may also need to be considered.
Professional cross-border advice can help identify potential risks and opportunities while avoiding unintended consequences.
Looking Ahead
With inheritance tax thresholds frozen until at least 2030, property values remaining elevated and pension reforms approaching, the upward pressure on inheritance tax receipts is unlikely to disappear anytime soon.
For many families, the biggest risk is assuming inheritance tax will not apply to them.
Whether you live in the UK or overseas, taking time to review your estate planning arrangements today could help preserve more of your wealth for the people and causes that matter most.
At Blacktower Financial Management, we work with UK residents and expatriates worldwide to help them understand complex inheritance tax issues and develop strategies aligned with their long-term financial objectives and family circumstances.
This article is for general information purposes only and does not constitute financial, tax or legal advice. Tax treatment depends on individual circumstances and may change in the future. Investments can fall as well as rise in value and you may get back less than originally invested.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
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