By 2031, the number of UK estates likely to pay IHT (inheritance tax) is expected to reach 63,100. That’s nearly double the most recent 32,000 figure.
The reasons are multiple and complex, but two key factors include frozen tax thresholds and key recent policy shifts (particularly in the last two Autumn Budgets).
Our financial planners at Castlegate are concerned that this stealthy expansion will pull more middle-income families into the standard 40% tax net for IHT. The OBR (Office for Budget Responsibility) projects that estates paying IHT will rise from 5% to 9.3% in the coming years.
At Castlegate, our financial planners urge clients to review estate plans now, as changes like pension inclusion and relief caps accelerate the trend.
It seems strange that IHT receipts are expected to surge so much if the Autumn Budget brought no direct change to the 40% IHT rate. However, frozen nil-rate bands lie at the heart of this.
The £325,000 nil-rate band (NRB) and £175,000 residence nil-rate band (RNRB) remain unchanged until at least 2031, eroding in real terms against inflation and asset growth.
These thresholds have already been frozen for a long time, and the “hidden” impact on estate planning is remarkable when you examine the data. Had these thresholds risen with prices since 2009, the NRB would sit around £525,000 today.
The OBR expects the ongoing freezes to raise a record £14.5 billion by 2030-31, hitting 63,100 estates as house prices and pensions inflate estates beyond thresholds.
Recent reforms compound the pressure. From April 2027, defined contribution (DC) pensions enter the IHT net, ending their previous exemption – previously outside estates, these pots now face 40% tax on death, even for beneficiaries like children.
Business Property Relief (BPR) and Agricultural Property Relief (APR) will also face cuts from April 2026: 100% relief shrinks to 50% beyond a £1 million allowance per person, with unused portions transferable to spouses, squeezing family farms and businesses.
Whilst not strictly a “tax on death” (like IHT), a new high-value property surcharge was announced by the Chancellor in her 2025 Autumn Budget. This "mansion tax" will come in from April 2028, leading to an annual £2,500 tax levy on properties valued at over £2 million. The highest rate will be £7,500 on properties valued over £5 million.
The surcharge will be payable by owners and could significantly erode wealth ahead of death. Taken together, these layers - pension taxation, relief restrictions, band freezes and property surcharges - forecast that average IHT bills drop slightly to £238,000 by 2030-31 as more modest estates qualify, but total liability soars.
Middle Britain, not just the ultra-wealthy, now risks the tax. Without careful planning, a family home plus pension could easily breach £1 million for couples.
At Castlegate, we are encouraging cash-rich clients to act swiftly (especially in light of changes to Cash ISAs arriving in April 2027).
Gifting remains a viable option for many. Remember, annual exemptions of £3,000 plus small gifts escape IHT and are not subject to the Seven-Year Rule, while trusts can help with ringfencing assets (although this is a complex area of tax planning and you should not assume trusts will remove IHT liability).
Here are some other options to consider exploring with your financial adviser:
Recent IHT changes demand a fresh estate audit. At Castlegate, our financial planners can help map your position, from pension tweaks to gifting schedules - ensuring more wealth reaches loved ones.
If you’d like to ensure you’re taking the right steps to protect your wealth and safeguard your financial future, please get in touch.
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