With Inheritance Tax receipts rising and tax-free thresholds frozen until at least April 2031, effective estate planning has never been more important.
HM Revenue & Customs’ (HMRC) latest figures highlight the growing significance of Inheritance Tax (IHT)
HMRC’s latest monthly tax receipts bulletin reports IHT receipts of £3.8 billion between April and August 2026, an increase of £100 million compared with the same period last year. June 2026 also saw the highest monthly IHT receipts on record. The longer-term trend is equally striking: annual receipts rose from £3.5 billion in 2006/07 to £8.5 billion in 2025/26.
These figures reflect rising asset values, wealth passing on death and frozen tax-free thresholds. They should prompt individuals and families to review their estate planning.
The nil-rate band: an allowance that has stood still
The nil-rate band (NRB) is the amount of an individual’s estate that can generally be passed on without incurring IHT. It has remained at £325,000 since April 2009 and is currently legislated to remain at that level until April 2031.
Meanwhile, many assets, particularly residential property, have increased substantially in value. An estate that once fell within the available allowance may now exceed it, even without significant additional savings or investments.
The allowance has therefore not kept pace with asset values, bringing more estates within IHT and increasing potential liabilities.
The Government has confirmed that the NRB, residence nil-rate band and associated taper will remain frozen until the end of the 2030/31 tax year. Unless the rules change, the gap between estate values and available allowances may widen further as asset values rise.
How much of an estate can be passed on tax-free?
An additional residence nil-rate band (RNRB) of up to £175,000 may be available where a qualifying residence is inherited by direct descendants, subject to the relevant conditions. This can increase an eligible individual’s available allowance to as much as £500,000.
For married couples and civil partners, unused NRB and RNRB allowances may be transferable to the surviving spouse or civil partner where the relevant conditions are met. A qualifying couple may therefore benefit from combined allowances of up to £1 million.
These allowances are not always available in full. The RNRB has eligibility requirements and tapers for estates exceeding £2 million. Asset ownership, the Will and the composition of the estate can affect the outcome.
Rising asset values and the risk of an unexpected IHT liability
For many families, the family home represents a substantial proportion of their wealth. Property, investments, savings and other assets can push an estate above the available allowances.
This is particularly relevant in London and the South East, where residential property may account for a significant proportion of an individual’s estate.
An estate comprising property, savings and investments may be exposed to IHT even where its growth largely reflects an increase in the value of the home.
IHT is generally charged at 40% on the taxable value above the available thresholds, subject to exemptions, reliefs and other rules. Liability depends on individual circumstances, including lifetime gifts and the terms of the Will.
Rising receipts do not mean every estate will face a higher tax bill. However, rising asset values and frozen thresholds are important factors contributing to the growing IHT burden.
Families who have not reviewed their arrangements recently should revisit their position.
Estate planning: taking practical steps now
Although IHT cannot be avoided in every case, careful planning can help individuals understand their potential exposure and consider legitimate ways of managing it.
1. Reviewing your Will
Your Will should reflect your current circumstances, wishes and family arrangements. It is also worth considering whether your estate is structured to make appropriate use of available allowances and reliefs.
2. Considering lifetime gifts
Lifetime gifts may form part of an effective estate planning strategy. Their IHT treatment depends on the nature and circumstances of the gift, and any gifting should be considered alongside your financial security and future needs.
3. Making use of exemptions and reliefs
Certain transfers may qualify for exemptions or reliefs, including spouse or civil partner transfers, annual gifting exemptions and reliefs for qualifying business or agricultural assets. It is important to establish which provisions apply rather than assume relief is available.
4. Reviewing ownership and the family home
How property and other assets are owned can affect their treatment on death. Reviewing ownership arrangements, your Will and the potential availability of the RNRB may help identify opportunities for appropriate planning.
5. Considering the wider family position
Estate planning is not solely about tax. It should provide for a surviving spouse or partner, intended beneficiaries, family circumstances and the practical administration of the estate, while reflecting your wider objectives.
6. Keeping arrangements under review
Tax rules and personal circumstances change. Marriage, divorce, the birth of children or grandchildren, an inheritance or a change in asset values may all affect whether an existing estate plan remains appropriate.
A review can identify whether the current rules or your circumstances call for changes.
Why take advice now?
A long-standing NRB, frozen allowances and changing asset values mean IHT planning should not be left until later life or estate administration.
The right approach will differ between individuals and families. For some, reviewing a Will and available allowances may be sufficient. Others may wish to consider lifetime gifts, ownership arrangements or more detailed succession planning.
The first step is to understand your potential IHT position and ensure your arrangements reflect your wishes and circumstances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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