Legal News | 21.05.26

From city to suburb: the widening scope of IHT

According to a recent article in the Financial Times, between 2018 and 2023 five London constituencies paid more inheritance tax (IHT) than the whole of Scotland and Wales combined. As the IHT net widens and thresholds remain frozen, IHT receipts continue to rise and in 2025/26, the tax raised £8.5 billion (a marked increase on the reported £8.2 billion collected during the previous tax year).

IHT applies to all ‘long-term residents’ of the UK (and, broadly, those who aren’t long-term resident but hold UK situated property).  Every individual has a ‘nil rate band’ (NRB) (currently £325,000) and potentially an additional ‘residence nil rate band’ (RNRB) of up to £175,000 if an interest in residential property is left to ‘direct descendants’ of the deceased. This potentially gives married couples, with children, a combined NRB and RNRB of £1 million between them.  IHT is then payable on death at a rate of 40% on all assets above the NRB (and RNRB where available) which do not qualify for exemption or relief.

Remarkably, the NRB has been frozen since 2009 and will remain frozen (as well as the RNRB) until 2031. As property and asset values continue to rise significantly, these threshold ‘freezes’ mean that more people are being pulled into the IHT net.

Added to this are significant legislative changes impacting IHT.  Measures originally announced by the UK government in October 2024 now restrict the availability of 100 per cent IHT relief for qualifying business/agricultural property to a combined £2.5 million per person (as opposed to the previous position where these reliefs could apply without limit). From 6 April 2027, the IHT treatment of inherited pensions will also significantly change and most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes. These two changes alone will account for around 14% of total IHT revenue in five years’ time, according to the Office of Budget Responsibility.

Death and taxes are certain, but the evolving IHT landscape is not. It is now more important than ever to seek proper legal advice when considering your own IHT planning, and our Private Client Team here at Wansbroughs are here to help, so please do get in contact.