Inheritance Tax (IHT) is normally paid from your estate after death, before anything is passed to your beneficiaries. This means beneficiaries can feel the impact through a reduced inheritance.
When your estate, the money, property and possessions you’ve spent a lifetime building, exceeds the Inheritance Tax threshold, HMRC can claim up to 40%. Wealth you intended to pass on to your loved ones, and which they may depend on, can end up in the Treasury instead.
And the burden is increasing
Not just a tax for the wealthy
It used to be that only the very wealthy paid inheritance tax. But every year, more families are being drawn into its scope.
IHT receipts reached £8.5bn for April 2025 to March 2026, according to data from HM Revenue & Customs. This represents a £0.3bn increase on the previous year, and a new record.
It is no longer a tax reserved for the ultra-wealthy. The number of ordinary families affected is set to rise further.
The key drivers behind the growing tax burden
Industry experts point to two key drivers behind the growing burden.
The first is the rise in property values. The average UK home cost £143,567 in April 2009. The comparable figure today is £267,957.
Meanwhile, the basic IHT threshold has been frozen since the 2009/10 tax year, and the residence nil-rate band, which offers an additional £175,000 allowance, has not increased since 2020. With no adjustment for inflation or rising asset values, this has created a classic stealth tax, delivering an ever-increasing windfall for the Treasury.
The second factor is the growth in personal wealth. More people now hold investments that increase the overall value of their estates. While ISAs are free from income tax and capital gains tax, they still form part of your estate and are subject to IHT.
And now, there is a third factor to consider.
Why IHT is set to increase from April 2027
Private pensions are currently outside of your estate for IHT purposes. However, from April 2027, any remaining pension funds will be included when calculating inheritance tax.
This change removes a widely used planning opportunity, where pensions could be used to pass on wealth efficiently to future generations.
As a result, more estates will be pushed above the IHT threshold. Government estimates suggest a further 10,500 estates could be affected by 2027–28.
In addition, where death occurs after age 75, beneficiaries may also pay income tax on inherited pension funds, meaning, in some cases, the same money could effectively be taxed twice.
How to reduce inheritance tax impact on your beneficiaries
Inheritance tax is an increasing risk for many families. But there are steps you could take to help reduce the impact.
One option is to reduce the size of your estate during your lifetime. Spending wealth, particularly from pensions, may now make more sense than it once did, provided it does not compromise your own long-term financial security.
Gifting is another effective strategy. By passing on wealth during your lifetime, you could support your family when they may need it most. And if you survive for seven years after making a gift, it will typically fall outside of your estate for IHT purposes.
More advanced planning options include the use of trusts to manage the transfer of wealth, or life insurance policies designed to cover a potential IHT liability.
Taking a proactive approach to estate planning
Inheritance tax is complex, and the rules continue to evolve. But with suitable advice, there are ways to help ensure more of your wealth ends up where you intend it to.
At Continuum, we have the expertise to guide you through the IHT landscape and help you put the appropriate plans in place.
To find out more, speak to us today.
Open data and tools from the department | Open Data
Millions sleepwalking into pensions death tax trap | Telegraph
What’s happening with UK house prices? Latest property forecasts for 2026 | MoneyWeek
Inheritance tax receipts hit record high in 2025/26 to £8.5 billion | MoneyWeek
Inheritance Tax — thresholds – GOV.UK
This article is intended for general guidance only and is based on the opinion of Continuum it does not constitute financial advice. Individual circumstances vary, and you should consider seeking advice from a regulated financial adviser before making any decisions about your Inheritance tax planning.
The Financial Conduct Authority does not regulate taxation and trust advice or will writing.
The value of an investment can go down as well as up. When investing Capital is at risk.
Investors in ISAs do not pay any personal tax on income or gains. Levels and basis of reliefs from taxation are subject to change and their value depends upon your personal circumstances.
We recommend that you seek professional advice on personal taxation matters.
Inheritance tax planning
With the right advice there are several legitimate strategies that can meaningfully reduce what the taxman takes from your estate. Find out how Continuum can help.
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