The inheritance tax time bomb: how older homeowners can prepare in 2026

The scale of the problem: why more families are now in IHT territory

Inheritance tax was once largely the concern of the genuinely wealthy. That is changing. The combination of frozen thresholds and rising property values has brought many ordinary homeowners — particularly in London, the South East, and increasingly across much of England — into inheritance tax territory without any change in their wealth trajectory.

The Mortgage Strategy analysis published in June 2026 found that 136 local authority areas now have average estate values above the IHT threshold. This is the "accidental millionaire" phenomenon: families whose primary asset is a home they bought decades ago, which has appreciated substantially, and which they never intended to be a source of tax liability.

Source: Mortgage Strategy, June 2026.

The driver is structural. IHT thresholds have been frozen at their current levels and will remain so until at least April 2031 under current government policy. Inflation, population growth, and constrained housing supply mean that property values in many parts of the UK continue to rise. Every year the freeze continues, more estates cross the threshold without any deliberate wealth accumulation.

The current thresholds — and how they work

Understanding your IHT position starts with knowing the current thresholds accurately. Many homeowners either underestimate or overestimate their exposure.

The residence nil-rate band applies where the property is left to direct descendants (children, grandchildren). It tapers down for estates above £2 million. For married couples and civil partners, unused nil-rate bands can be transferred to the surviving spouse — meaning an estate can benefit from up to £1 million in combined thresholds.

How equity release could fit into estate planning

Later life lending — including lifetime mortgages — can interact with inheritance tax planning in ways that are worth understanding, even if they are not suitable for everyone. Verity Home does not provide tax or legal advice, and any IHT planning should be discussed with a qualified specialist alongside any later life lending advice.

The core principle is that a lifetime mortgage is a debt secured against your property. When you draw funds from your home through a lifetime mortgage, those funds become part of your liquid assets — cash, investments, or gifts. They are no longer locked inside the property value. And the loan itself is a liability that sits against the estate at the point of death, reducing the net estate value for IHT purposes.

This can interact with IHT in the following ways:

• Gifting from equity release proceeds. Funds drawn through a lifetime mortgage can be gifted to children or grandchildren. Provided the person gifting lives for seven years after making the gift, the gift falls outside the estate for IHT purposes under the seven-year gifting rule. This is not unique to equity release — any gift works this way — but equity release is a mechanism for accessing that capital without selling the property.
• Reducing the taxable estate. The outstanding loan balance reduces the net estate value at death. If property makes up a large proportion of the estate, the loan on that property reduces the amount subject to IHT.
• Funding IHT-efficient investment products. Some clients use equity release proceeds to fund investments that fall outside the estate for IHT purposes, such as certain Business Relief-qualifying products. This is specialist planning territory and requires advice from a qualified IHT specialist.

These interactions are real but complex. They need to be considered alongside the full estate plan — the will, any existing gifts, pension death benefits, and the interests of beneficiaries — rather than in isolation. The right approach for most homeowners is to speak to a later-life lending specialist and an IHT planning specialist together, or to find an adviser who can bridge both areas.

The seven-year gifting rule: what homeowners need to know

The seven-year rule is one of the most important and most misunderstood elements of IHT planning. Under current rules, a gift made by an individual falls entirely outside their estate for IHT purposes if they survive for seven years after making it. If they die within seven years, a tapering relief applies — the closer to death the gift was made, the greater the proportion subject to IHT.

The practical implication for homeowners considering equity release as part of an IHT strategy is clear: the earlier the conversation starts, the more of the seven-year window is available. A homeowner who has the conversation at 65 and makes a gift at 66 is in a very different position to one who first raises it at 78.

There are also rules about gifts from income — regular payments from surplus income can be immediately exempt from IHT regardless of the seven-year rule, though these require careful documentation. And some gifts are immediately exempt regardless of survival: the annual exemption (£3,000 per year), small gift exemptions, wedding gifts, and gifts between spouses or civil partners.

These rules change, and it is always worth checking the current position with a qualified adviser. This article reflects the rules in force in June 2026.

Practical steps for homeowners who may be affected

If you own a property worth over £325,000, or if you are a couple whose combined estate could exceed £1 million, the starting point is to understand where you actually stand. Many families discover they have a significant IHT liability only when dealing with an estate after a death — at which point there is little that can be done.

The steps worth considering now:

• Get a current valuation of the estate. Include property, savings, investments, and any life policies not written in trust. Subtract any liabilities. Compare the net estate to the thresholds available to you (factoring in whether a nil-rate band from a deceased spouse is transferable).
• Review your will. A will that was written before the residence nil-rate band was introduced (from 2017), or before significant property appreciation, may not be structured to use the available thresholds efficiently.
• Consider a lasting power of attorney. This is not directly an IHT tool, but it is essential planning for later life. If you lose capacity without one in place, managing your finances — including any equity release or IHT planning — becomes significantly more complicated for your family.
• Speak to a later-life lending specialist. If your property equity is a significant part of your estate, understanding how a lifetime mortgage could fit into your overall position is a conversation worth having — with no obligation to proceed.