Inheritance Tax Hits a Record £8.5bn: What It Means for Your Family

Inheritance tax used to be something other people paid. The "death duty" was, in the public imagination, a problem reserved for landed gentry, hedge fund managers, and the occasional aristocrat with a portfolio of central London mews houses. That picture is now badly out of date.

Official figures released by HMRC show that inheritance tax (IHT) receipts hit an all-time high of £8.5bn in the 2025–26 financial year, up from £8.2bn the year before. And, crucially, those numbers don't yet capture the bigger changes either landing now or coming soon: the inheritance tax raid on family businesses and farmland that took effect in April 2026, and the long-trailed decision to bring pension savings into the IHT net from April 2027.

In short: the tax base is widening, the thresholds aren't moving, and a lot more families are about to discover that "normal" middle-class wealth—a house, a pension, some savings—is now firmly in scope.

Why receipts are climbing so fast

The Treasury isn't pulling a single big lever; it's pulling several smaller ones at once. Three forces are doing most of the work:

1. The frozen nil-rate band

The standard nil-rate band has been stuck at £325,000 since 2009 and is now frozen until around 2031. House prices, pension pots, and ISA balances have not been so polite. As asset values rise but the threshold doesn't, more estates quietly cross the line into taxable territory each year. This is the textbook definition of fiscal drag—a stealth tax rise that requires no headline-grabbing Budget moment.

2. The non-dom crackdown

Stricter rules around non-domiciled status, introduced as part of the government's wider non-dom reforms, have brought more global assets into the UK inheritance tax net. The system has shifted toward a residence-based test, and the trust protections that long-term non-doms once relied on have been pared back. Expect this to keep feeding receipts for several years.

3. Tougher HMRC enforcement

Wealth advisers have flagged a noticeable uptick in enforcement activity—more queries, more challenges to valuations, and less benefit of the doubt on reliefs. More than 14,000 bereaved families have been investigated for potentially underpaid IHT since 2022–23, with case volumes running ahead of last year. It's a polite way of saying: get your paperwork right, or expect a phone call.

The reforms that haven't shown up in the numbers yet

The £8.5bn figure is, in a sense, the calm before a bigger wave. Two reforms—one already live, one a year out—will materially expand the tax base:

Family businesses and agricultural land (April 2026). Long-standing carve-outs under Business Property Relief and Agricultural Property Relief have been tightened. After a partial climbdown in December 2025, the 100% relief allowance was raised from the originally proposed £1m to £2.5m per individual (up to £5m per couple via spousal transfer). Qualifying assets above that allowance now attract IHT at an effective rate of 20% rather than being relieved entirely. AIM-listed shares lose 100% relief altogether and drop to 50%. The reforms have prompted very public warnings from entrepreneurs including Sir James Dyson, hotelier Sir Rocco Forte, and JCB heir Jo Bamford about forced sales—or even relocations—of family-run firms.
Pensions in scope (April 2027). From 6 April 2027, unused pension pots—until recently one of the most efficient ways to pass wealth down a generation—will fall within the inheritance tax net on death. The government estimates this will pull around 10,500 additional estates into IHT each year and increase bills for a further 38,500 estates by an average of £34,000. For families who treated pensions as a dynastic wealth-transfer tool, this is a meaningful re-rating.

Capital gains tax tells a parallel story. CGT receipts for the year jumped 62% to a record £22.2bn, partly because pre-Budget speculation pushed many owners to crystallise gains early. As Sarah Coles of AJ Bell has observed, capital gains revenue is "lumpy"—a small number of very large investors can shift the totals dramatically. Expect more volatility, not less.

What this actually means for "ordinary" families

The political framing of inheritance tax has always assumed it touches a narrow elite. The numbers no longer support that view.

A typical homeowner couple in the South East—two state pensions, a paid-off house, a modest DC pension each—can comfortably exceed the combined nil-rate and residence nil-rate bands without ever feeling "wealthy."
The "cliff edges" in the relief system are unforgiving. Estates that drift slightly over a threshold, or that miss a technical condition for relief, can pay materially more tax than estates worth significantly less.
With pensions coming into scope from April 2027, the entire shape of intergenerational planning is changing. The order in which you draw down assets, gift, and consume capital matters more than it used to.

The uncomfortable truth is that not doing anything is now a tax decision. Inertia has a price tag.

Five things to do this year

You don't need a private bank to make a real dent in your eventual IHT bill. The mechanics are well established—they just need to be used.

Know your true position. Add up everything: property, pensions, ISAs, life policies (in or out of trust), business interests, and any foreign assets. Most people underestimate their estate by a meaningful margin.
Use the gifting allowances. The annual £3,000 exemption, small gift exemption, gifts out of normal expenditure, and the seven-year potentially exempt transfer rule are all still on the table. They reward people who start early.
Revisit the residence nil-rate band. The extra £175,000 allowance for passing a main residence to direct descendants is valuable, but tapers away for estates above £2m. If you're near that threshold, the planning is non-trivial.
Re-think the role of your pension ahead of April 2027. Once pensions become liable to IHT, the "spend ISAs first, leave the pension untouched" playbook needs a fresh review. So does the choice of expression-of-wishes nominees.
Get the paperwork in order. Wills, trusts, lasting powers of attorney, and a clear, accessible record of where everything sits. HMRC's enforcement net is tighter; sloppy admin is now more expensive than it used to be.

How LifeFolio™ helps

This is the gap LifeFolio™ is built for. For £2.99 a month, our digital vault is designed to make modern estate planning genuinely doable:

Map your estate in one place. Track what you own, what you owe, and where it all lives—accounts, properties, pensions, policies, even the digital assets that solicitors still struggle to capture.
Get a personalised inheritance tax plan. See where the cliff edges are for your estate and which levers (gifting, trusts, pension nominations, charitable giving) actually move the needle.
Store the documents that matter. Property deeds, insurance policies, business records, and the letters that explain the "why" behind your decisions—all encrypted and ready when needed.
Share securely with people you trust. Decide what your executors, partner, or children can see now, and what unlocks later. Privacy and peace of mind don't have to be a trade-off.

Subscribers also get access to professionally reviewed, legally binding wills (with a letter of wishes, if needed) for £60—a fraction of typical high-street solicitor fees, and arguably the single most important piece of admin standing between your family and an unnecessary IHT bill.

The bottom line

Inheritance tax is no longer a problem for "the wealthy." Frozen thresholds, a wider tax base, and tougher enforcement have turned it into a quiet middle-class issue—one that grows a little worse every year you do nothing about it. The good news is that the planning tools haven't gone anywhere. They reward the people who start early.

If you'd like a clear picture of where your estate currently stands, take the Estate Readiness Assessment. It takes a few minutes, and it will tell you a lot more than a Budget speech ever will.

Based on reporting by City AM: "Inheritance tax receipts soar to all-time high". This article is for informational purposes only and does not constitute legal or financial advice.