Inheritance tax bills hit record levels — why more families are looking at their homes

Why IHT bills keep rising even as fewer estates pay

The headline figure from Money Marketing’s reporting of the latest HMRC data is striking: IHT liabilities hit a record £7.03 billion, up 5% year-on-year. What makes this particularly notable is that the number of estates paying IHT has not risen proportionally — the increase is driven by the size of bills, not the number of payers. That reflects what happens when thresholds are frozen and asset values rise: the same thresholds catch a wider range of estates, and those estates face larger bills because the gap between their asset value and the threshold has widened.

The nil-rate band — the amount of an estate that is exempt from IHT — has been frozen at £325,000 for many years. The residence nil-rate band, which provides an additional threshold of up to £175,000 where a home passes to direct descendants, has also been frozen. Together they give a potential combined threshold of £500,000 for a single person or £1,000,000 for a couple passing a home to children. But those figures have not moved while house prices have risen — meaning estates that would previously have been comfortably below the threshold are now approaching or exceeding it.

How frozen thresholds pull more homeowners into scope

The mechanism is straightforward. An estate worth £480,000 in 2020 — largely a family home — was below the individual nil-rate band and faced no IHT. By 2026, the same house has risen in value. If it is now worth £550,000, the estate may cross the single nil-rate band. The homeowner has not done anything differently; the house has simply risen in value while the threshold stayed still.

For many homeowners, particularly those who bought decades ago in areas where prices have risen substantially, their estate now contains an IHT liability that did not exist when they purchased. It is an unintended consequence of threshold freezes in an inflationary property environment, and it is the primary driver of the record receipts HMRC is collecting.

The April 2027 pension change adds further pressure

From 6 April 2027, most unused pension funds and death benefits are due to be brought within the scope of an individual’s estate for inheritance tax purposes. This reverses the logic that many people used to structure their retirement finances — spending other assets first and preserving the pension as a tax-efficient inheritance vehicle. Once pension funds are included in the estate, the calculation changes significantly for anyone with meaningful pension savings alongside property wealth.

The combination of frozen thresholds, rising property values, and the forthcoming pension change means that inheritance tax planning is no longer a niche concern for very wealthy estates. It is increasingly relevant to ordinary homeowners who have simply owned a property for a long time in an area where prices have risen.

Why property wealth is at the centre of this

For most people affected by inheritance tax, the family home is the single largest asset in the estate. Cash savings and investments may be comparatively modest; the home may represent 60% to 80% or more of the total estate value. That concentration means that any thinking about IHT exposure has to start with the property.

One option some homeowners explore is releasing some of the equity from their property during their lifetime — reducing the value of the estate while accessing funds that can be used now, whether for their own needs or to help family. This does not eliminate an IHT liability automatically; how it affects the estate depends on what the released funds are used for and over what time period. But understanding how much equity is in the property, and what the options for accessing it look like, is a useful starting point for thinking through the broader picture.

For more on how equity release interacts with inheritance planning, see our guide to equity release and inheritance tax. For a general introduction to what equity release is and how it works, see our guide to what is equity release.