Why UK Inheritance Tax Is No Longer Just a Wealthy Families' Problem

Inheritance Tax (IHT) receipts in the UK reached £7.03bn in the 2023/24 tax year, up from £6.70bn in 2022/23. The rise is part of a broader trend: the Office for Budget Responsibility (OBR) forecasts that the number of estates paying IHT will climb to nearly 10% of all deaths by 2029/30, with annual receipts projected to reach £13.7bn.

The main driver is the long freeze on IHT thresholds. The nil-rate band has remained at £325,000 since 2009, while the residence nil-rate band has been capped at £175,000, so rising property values and investment growth are pushing more estates over the limit without any change in the law.

Further policy changes will add to the effect. From April 2027, pension benefits will be included in estate calculations for IHT purposes, a measure that is likely to bring more families into scope. The OBR's projections already reflect these reforms, and the direction of travel has been highlighted by Simon Martin, Head of UK Technical Services at Utmost, an insurance-based wealth solutions provider.

The practical consequence is that Inheritance Tax, once associated mainly with very wealthy families, is bearing down on a wider group. The OBR's figures suggest the pace will quicken later this decade, and the options available to reduce a potential liability may narrow as the 2027 changes approach.

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How Frozen Allowances and the 2027 Pension Change Are Reshaping IHT

What the OBR's Numbers Show

The verified figures show total IHT liabilities of £7.03bn for 2023/24, compared with £6.70bn for 2022/23. The OBR projects that nearly one in ten deaths will produce an IHT charge by 2029/30, and that annual receipts will rise to £13.7bn. If those forecasts hold, the tax will shift from a narrow levy on the very wealthy to a mainstream family finance issue.

The Mechanism Behind the Rise: Frozen Thresholds

The key mechanism is not a change in the tax rate but the value of assets. The £325,000 nil-rate band has been fixed since 2009, and the additional £175,000 residence nil-rate band has also been capped. With house prices and pension wealth growing, the proportion of estates above these thresholds rises automatically. This is an analytical reading: the figures show rising receipts and a forecast increase, while the OBR's description attributes the trend to frozen thresholds and recent policy changes.

What the April 2027 Pension Change Means

From April 2027, pension benefits will be counted within the estate for IHT purposes. Currently, unused pension pots can often pass outside the estate, which is one reason retirement savings have been a standard planning vehicle. Including them will enlarge the taxable value of many estates and is expected to accelerate the trend the OBR describes. The exact treatment of different pension schemes is not detailed in the source, so the precise effect remains uncertain.

Who Gains and Who Loses

HM Treasury is the clearest beneficiary: projected receipts of £13.7bn by 2029/30 would be nearly double the £7.03bn collected in 2023/24. Families with property or pension wealth are the main losers, though the impact is uneven. Those with estates near the thresholds, rather than the very richest, are likely to feel the change most because their planning options may be more limited. Businesses such as Utmost, which sell insurance-based wealth solutions, have a commercial stake in the trend and an incentive to draw attention to it.

Checks Families Can Make Before April 2027

  • Work out whether the estate currently exceeds the frozen £325,000 nil-rate band and the £175,000 residence nil-rate band; an estate above these limits is in the group the OBR expects to grow.
  • Check how pension benefits are currently arranged. Because pensions will be counted in estate calculations from April 2027, pots that today pass outside the estate may not do so after the change.
  • If the estate is close to the thresholds, consider acting before April 2027: the source notes that the range of options available to manage a potential liability may narrow as the reforms take effect.
  • Use the OBR's projected timeline as a planning horizon rather than a precise promise: the £13.7bn receipts figure and the nearly 10% death-rate forecast depend on assumptions that may be revised.