If you’ve been told “inheritance tax is only for the very rich,” park that myth. A wave of inheritance tax changes, some already locked in, others in the pipeline, will quietly pull tens of thousands of ordinary households into the tax net over the next few years. It’s fiscal creep at its finest: no flashy headline rate rises, just frozen thresholds, new rules and redefined reliefs that steadily claim more from the legacies people hoped to leave their loved ones.
The stealth squeeze
The most significant driver is the government’s decision to freeze the inheritance tax threshold, the nil-rate band at £325,000 and the residence nil-rate band (RNRB) at £175,000, until April 2030. These allowances haven’t shifted in years, but house prices, pensions and investments keep growing. For couples, unused allowances can still transfer, meaning up to £1m can pass free of IHT, but only if you meet the RNRB criteria, such as leaving a qualifying home to direct descendants. This threshold freeze until 2030 is one of the biggest stealth tax hikes in years (FT analysis).
From April 2027, pensions and IHT will collide. Most unused pension pots and lump-sum death benefits will be counted as part of your estate for IHT purposes (spouse and charity exemptions remain). This ends the long-standing use of pensions as a tax-efficient shelter for passing on wealth. If you’ve been planning to leave your pension untouched for your heirs, you’ll need a fresh inheritance tax planning UK strategy.
Business and farm owners will also see major changes. From April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) will give 100% relief only on the first £1m of qualifying assets per person. Anything above that will get 50% relief, and AIM-listed shares – often used for IHT mitigation strategies – will be subject to the same 50% cap. This is a direct hit to those relying on APR/BPR inheritance tax relief to pass businesses intact to the next generation. Transfers made after 30 October 2024 could still be caught if death occurs after the new rules take effect.
From April 2025, the UK will adopt a residence-based inheritance tax system. Anyone who’s been UK-resident for 10 of the last 20 years will have their worldwide assets in scope for UK IHT – and will remain caught for a period even after leaving the country.
The numbers tell the story
Inheritance tax may still hit a minority, but that minority is growing fast. In 2022/23, just under 5% of estates paid IHT – around 31,500 in total – but receipts are forecast to reach £9.1bn by 2025/26. The rise isn’t due to a higher rate, but to frozen allowances, higher asset values and inheritance tax reforms that capture more estates.
In practical terms, middle-income families with a paid-off home, a decent pension and some savings are now firmly in HMRC’s sights.
How to protect your estate
The first step is simple: get your will right and keep it updated. Too many families miss out on the RNRB because the property isn’t left to direct descendants, or they breach the £2m taper threshold without realising it.
Use existing allowances while they’re still available. That means the nil-rate bands, the £3,000 annual gifting allowance, small gifts to multiple people, and the exemption for regular gifts out of surplus income – provided they’re documented and don’t reduce your standard of living. Gifting rules inheritance tax UK are under review, but gifts made now will still count under current law.
Pensions now need careful review. With the 2027 change, rethink how much to leave in your pension versus other assets, update beneficiary nominations, and coordinate with your overall inheritance tax planning UK approach.
For many, a life insurance policy written in trust is a straightforward inheritance tax mitigation strategy – ensuring heirs have cash to pay the bill without selling the family home. And for those who want to combine tax efficiency with values, leaving 10% or more of your estate to charity will reduce the IHT rate on the remainder from 40% to 36%.
What’s Next?
The Autumn Budget 2025 is expected to outline further reforms, possibly including a lifetime cap on tax-free gifts and changes to taper relief. These could hit families trying to help children with property deposits or pass on wealth early.
Inheritance Tax – Frequently Asked Questions
The Autumn Budget 2025 is expected to outline further reforms, possibly including a lifetime cap on tax-free gifts and changes to taper relief. These could hit families trying to help children with property deposits or pass on wealth early.
Q: What is the current inheritance tax threshold in the UK?
The inheritance tax UK threshold, known as the nil-rate band, is £325,000 per person. There’s also a residence nil-rate band (RNRB) of £175,000 if you leave a qualifying home to direct descendants. Both thresholds are frozen until April 2030, meaning more estates will become liable over time.
Q: What are the recent inheritance tax changes?
Key inheritance tax changes include: the nil-rate band and RNRB frozen until 2030; from April 2027, most unused pension pots will be included in your estate for IHT; from April 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) will be capped at 100% relief for the first £1m, and 50% thereafter; and a move to residence-based IHT rules from April 2025.
Q: How can I reduce or avoid inheritance tax in the UK?
You can lower your IHT bill through inheritance tax mitigation strategies such as using your £3,000 annual gifting allowance and other exemptions; making regular gifts out of surplus income; leaving a qualifying home to direct descendants; holding certain business or agricultural assets (subject to new APR/BPR rules); placing life insurance in trust; and leaving 10% or more of your estate to charity to reduce the rate from 40% to 36%.
Q: Do pensions count towards inheritance tax?
From April 2027, most unused pension pots and lump-sum death benefits will be included in your estate for IHT purposes. This major shift in pensions and inheritance tax planning means you may need to adjust your retirement drawdown strategy and beneficiary nominations.
Q: What are the gifting rules for inheritance tax in the UK?
Under current gifting rules inheritance tax UK, exemptions include the £3,000 annual allowance, small gifts of up to £250 per person, wedding or civil partnership gifts, and regular gifts out of surplus income. Potentially Exempt Transfers (PETs) fall outside your estate after seven years.
Q: What is APR/BPR inheritance tax relief?
APR/BPR inheritance tax relief allows qualifying agricultural land, buildings, or certain business assets to be passed on at a reduced or zero IHT rate. From April 2026, full 100% relief will apply only to the first £1m of qualifying assets per person, with 50% relief on the rest.
Q: How does the residence-based inheritance tax rule work from April 2025?
From April 2025, if you’ve been UK-resident for at least 10 of the last 20 years, your worldwide assets will be subject to UK IHT – even if you’ve recently moved abroad. This reform makes inheritance tax planning UK critical for internationally mobile individuals.
Q: What is the residence nil-rate band (RNRB) and who qualifies?
The RNRB is an additional allowance of £175,000 per person when a qualifying home is passed to direct descendants. Estates above £2 million face a taper of the RNRB, so correct will drafting and estate planning are essential.
