HMRC Inheritance Tax Warning: More UK Families Face IHT Bills
HMRC data shows more families face inheritance tax as property prices rise and thresholds freeze. Learn who is affected and how to plan ahead.
Latest HMRC figures show that more UK families could face unexpected inheritance tax bills in the coming years. Rising property prices and frozen thresholds are combining to pull more estates into the tax net.
Inheritance tax receipts reached over £7.5 billion in the 2024/25 tax year, a record high. Experts predict this figure will continue rising in 2025 and beyond.
This means thousands of middle-income families, once far below inheritance tax thresholds, may now owe significant sums simply due to the increase in home values and the long-term freeze on allowances.
This article explains what the latest HMRC data shows, how the current rules work, why more households are being caught, and how to reduce or plan for potential inheritance tax exposure.
For a detailed guide on how to avoid inheritance tax, our how to avoid inheritance tax guide covers legitimate strategies. If you are dealing with inheritance after a parent's death, our inheritance tax when second parent dies guide explains the rules.
Inheritance tax receipts reached over £7.5 billion in 2024/25. More families are being pulled into the tax net due to frozen thresholds and rising property prices. The Nil Rate Band has been frozen at £325,000 since 2009.
What Is Inheritance Tax
Inheritance Tax is a tax on the value of a person's estate, including property, savings, investments, and possessions, after they die.
The key threshold is known as the Nil Rate Band. As of 2025, it remains at £325,000 per individual. This threshold has been frozen since 2009. Anything above this amount may be taxed at 40%.
To help families pass on homes to direct descendants, an additional allowance called the Residence Nil Rate Band applies. This is £175,000 per person. Eligible married couples may be able to pass on up to £1 million free of inheritance tax if they qualify for the full Nil Rate Band and Residence Nil Rate Band.
However, because both bands have been frozen until 2028, more estates are being pushed over the threshold as asset values increase.
The Nil Rate Band is £325,000 per individual and has been frozen since 2009. The Residence Nil Rate Band is £175,000 per person. Eligible married couples may be able to pass on up to £1 million tax-free.
Why Inheritance Tax Receipts Are Rising
HMRC data shows inheritance tax receipts have surged year-on-year, reaching over £7.5 billion in the 2024/25 fiscal period.
As property values continue to rise, more households are becoming liable for inheritance tax even when they do not consider themselves wealthy.
The Office for Budget Responsibility forecasts that the number of estates paying inheritance tax will double between 2020 and 2030.
The reason is a combination of frozen thresholds and rising home prices. This is known as fiscal drag. Thresholds that do not rise with inflation mean more estates are pulled into the tax net each year.
Our inheritance tax changes guide covers the upcoming reforms from April 2027.
Inheritance tax receipts have surged due to frozen thresholds and rising property values. The OBR forecasts the number of estates paying IHT will double between 2020 and 2030.
How Rising Property Values Affect IHT
Property inflation means the average UK house price now exceeds £285,000. In parts of London and the South East, it is over £600,000.
Since the inheritance tax threshold has not increased in over a decade, even modest homeowners may see their estates cross the taxable threshold.
Example: If your estate consists of a property worth £500,000, savings and investments of £150,000, and a total estate of £650,000 left to children, the calculation is as follows. The first £325,000 is tax-free. The remaining £325,000 is taxed at 40%, resulting in a tax bill of £130,000.
This is the scenario highlighted by the latest HMRC data. Thousands of families are facing inheritance tax without realising their estate qualifies.
Average UK house prices now exceed £285,000. A £650,000 estate left to children could face a £130,000 tax bill. Many families are unaware their estates are now taxable.
How Inheritance Tax Works in Practice
Here is how IHT is calculated step by step.
| Step | Description | Example |
|---|---|---|
| 1 | Value the estate | £700,000 |
| 2 | Subtract debts | £50,000 |
| 3 | Net estate | £650,000 |
| 4 | Nil Rate Band | £325,000 |
| 5 | Residence Nil Rate Band | £40,000 |
| 6 | IHT at 40% | £60,000 due |
The tax is usually paid by the executor or administrator of the estate before probate is granted.
Inheritance tax is calculated on the net estate after deducting debts. The Nil Rate Band and Residence Nil Rate Band are applied first. The remainder is taxed at 40%.
Who Is Most at Risk
Several groups are particularly at risk of being caught by inheritance tax under current rules.
Homeowners are the most affected group. Homeowners with valuable property and additional assets such as savings or investments may exceed the available inheritance tax thresholds.
Contractors and Limited Company Owners should be aware that company profits or retained earnings may count towards estate value if shares are passed on. This is especially true if Business Relief does not apply. Business Relief is subject to detailed conditions, and companies that mainly hold investments rather than trading assets may not qualify.
Retirees and Widowed Individuals face a particular risk. When one partner passes away, their unused threshold can transfer to the surviving partner. However, this must be claimed properly. Many fail to do so, losing valuable allowances.
Our cash gifts guide explains how gifts can reduce your estate value.
Homeowners with valuable property, contractors with company shares, and widowed individuals are at particular risk. Business Relief may apply to actively trading companies but is subject to detailed conditions.
Regional Impact: South East and London Hit Hardest
HMRC data shows that over 50% of inheritance tax receipts now come from just two regions: London and the South East. This is due to high property values in these areas.
Families with even modest semi-detached homes in these areas often breach the £500,000 to £1 million estate range. This regional imbalance has prompted renewed debate over whether thresholds should rise in line with inflation.
For families in these regions, early planning is particularly important. The Residence Nil Rate Band can help reduce the tax on your home, but you must ensure your will passes the property directly to children or grandchildren.
Our how to avoid inheritance tax guide covers strategies to reduce your liability.
Over 50% of inheritance tax receipts come from London and the South East. High property values in these regions mean more families are affected. Regional thresholds have not been adjusted.
How to Reduce or Avoid Inheritance Tax
There are legitimate and simple ways to minimise IHT exposure.
Use lifetime gifts. You can give away up to £3,000 per year tax-free, plus small gifts up to £250 per person. After 7 years, larger gifts may also fall outside your estate.
Leave everything to a spouse or civil partner. Transfers between spouses are IHT-free. The surviving partner can also inherit any unused allowance.
Use the Residence Nil Rate Band. Ensure your will passes property directly to children or grandchildren to qualify for the full RNRB.
Make charitable donations. Gifts to UK charities are IHT-exempt. If you donate 10% or more of your estate, the IHT rate on the remainder drops from 40% to 36%.
Use trusts and insurance policies. Placing assets into trusts or holding life insurance outside your estate can significantly reduce your taxable total.
Always seek advice from a qualified tax planner or solicitor, as HMRC can audit trusts and gifts if not properly documented.
For more detail, our inheritance tax guide for second parent death covers family-specific strategies.
Legal strategies to reduce IHT include lifetime gifts, spousal transfers, the Residence Nil Rate Band, charitable donations, and trusts. Professional advice is recommended for complex planning.
Key Takeaways
- HMRC data shows more UK families are now liable for inheritance tax due to frozen thresholds and rising property prices
- The Nil Rate Band is £325,000 and the Residence Nil Rate Band is £175,000, both frozen until 2028
- Inheritance tax applies at 40% on estates above these limits
- Planning early through gifts, wills, or trusts can prevent unnecessary tax
- Contractors and company owners should review business asset relief eligibility
- Over 50% of IHT receipts come from London and the South East
More families are now liable for IHT due to frozen thresholds and rising property values. Early planning through gifts, wills, and trusts can reduce your liability. Contractors should review Business Relief eligibility.
Final Thoughts
HMRC data shows that more UK families are now liable for inheritance tax. Frozen thresholds and rising property values mean more households are affected. The Nil Rate Band has been stuck at £325,000 since 2009, and the Residence Nil Rate Band is frozen until 2028.
Over 50% of inheritance tax receipts now come from London and the South East, where property values are highest. Families in these regions are particularly affected.
Early planning can reduce or eliminate your IHT liability. Use lifetime gifts, spousal transfers, the Residence Nil Rate Band, charitable donations, and trusts where appropriate. Contractors and company owners should review Business Relief eligibility.
All information in this guide is based on official HMRC and GOV.UK sources. Readers should seek professional advice before implementing any inheritance tax planning strategies, as rules are complex and subject to change.
Written by
Mia Carragher
Mia writes beginner-friendly UK tax and personal finance guides, with a focus on income tax, National Insurance, salary calculators and simple HMRC explainers.
See more from Mia Carragher