Bold warning: inheritance tax is tightening its grip on more families than ever before—and the Treasury’s take is set to rise again.
The Office for Budget Responsibility has upgraded its inheritance tax forecast by £0.7 billion, signaling that thousands of households will soon feel the impact of losing a key relief. The Spring Statement today shows the Treasury expectations for Inheritance Tax (IHT) receipts growing to £70.6 billion over the 2025/26 to 2030/31 period, up from the Autumn Budget 2025 projection by £700 million.
A number of sweeping changes loom for savers. Starting in April 2027, pension pots will fall under IHT rules as part of reforms unveiled by Chancellor Rachel Reeves in her 2024 Budget. This shift could mean that many families who previously used pensions as a tax-efficient method to transfer wealth will see a larger portion of their estate taxed at the 40% rate.
Compounding the effect are frozen thresholds and rising property values, which are pulling more estates into IHT. The OBR forecasts that over 16,000 estates will be worth more than £2 million by 2030/31, expanding the tax base further. With thresholds staying the same while asset values climb, IHT is increasingly affecting middle-market households, not just the ultra-wealthy, and that trend is driving higher government receipts.
Emma Walker, director at retirement adviser Just Group, notes that the forecast underscores how lucrative IHT has become for the Treasury, lifting its predicted haul by £0.7 billion to £70.6 billion over five years. Annual receipts are projected to rise from £8.7 billion this year to £14.7 billion by 2030/31, with every year from 2027/28 onward showing substantial increases (£100 million in 2027/28 and £200 million more each year through 2030/31).
Walker stresses that the combination of frozen thresholds and rising asset values has long been inflating IHT revenue. The new regime changes in the 2024 Autumn Budget, which bring pensions into IHT, are likely to accelerate this trend. More estates are forecast to incur IHT by the decade’s end, indicating that the tax is no longer confined to the very wealthy and is increasingly cutting into middle Britain’s wealth.
This creates a double challenge for families: higher house prices and pension tax changes kicking in next year. While some gifts and property are exempt from IHT (for example certain wedding gifts and charitable donations), a little-known trap can erode the residence nil-rate band once an estate exceeds £2 million in value. The extra £175,000 allowance disappears at a rate of £1 for every £2 above the threshold, disappearing completely at £2.35 million for singles or £2.7 million for couples.
Wealth manager Quilter estimates that 5,613 estates will surpass £2 million by 2027-28, rising to 16,000 by 2030-31. HMRC data show far fewer estates were above this threshold in 2022-23. NFU Mutual’s Sean McCann illustrates the impact with an example: a single person with a £2 million estate plus £500,000 pension currently faces a £600,000 IHT bill, which could rise to about £870,000 from April 2027. He warns that folding pensions into IHT could erode the family home’s tax-free allowance, creating a “triple blow” when combined with potential income tax charges on beneficiaries.
Experts urge readers to obtain up-to-date valuations of their estates, including property assessments, to gauge likely IHT exposure. Estate planning remains complex, and professional financial advice can be invaluable for managing estate efficiency and maximizing the inheritance passed to loved ones.
Alex Pugh, a financial planner at Saltus, cautions that imposing pensions into IHT from 2027 will substantially shift the landscape and pull more households into the tax net. He warns that many people may drift into IHT without realizing it, affecting not only the wealthy but also those who never considered themselves affluent. It’s a consequence of rising asset values paired with frozen thresholds.
As practical examples highlight, the current numbers can be eye-opening: an unmarried person with £20,000 in savings, a £290,000 home, and a £145,000 pension could look at little to no IHT today, but from 2027 may face roughly £52,000. A married couple with a £500,000 home, £100,000 in cash, £200,000 in ISAs, and £400,000 in pensions could confront an IHT bill around £80,000 on the second death. These scenarios illustrate how quickly the tax burden can grow under the new regime, even for ordinary families.
Bottom line: the combination of higher asset values, pensions entering IHT, and unchanged thresholds means more households—especially those in the middle—will need to plan carefully to manage IHT exposure.
Would you like a walkthrough of how to assess your own IHT risk and some practical steps to mitigate it, tailored to your situation?
