Large numbers of inherited tax bills cross the £500,000 mark for nearly 10% of estate distributions
The Office for Budget Responsibility (OBR) has forecasted a significant increase in estates liable for Inheritance Tax (IHT) over the next few years, with the number of estates paying over £500,000 in IHT expected to rise through 2025/26.
According to the latest data, more than 2,520 estates paid over £500,000 in IHT during the 2021/22 tax year, representing 9% of the total. This figure is a 29% increase since the 2018/19 tax year.
The growth in IHT receipts, with £2.22 billion collected in just April-June 2025 alone, signifies more estates exceeding the IHT threshold, which commonly begins at estates valued over £325,000 but effectively affects larger estates and assets exceeding around £500,000 after reliefs and exemptions are considered.
The freezing of thresholds means that even modest asset inflation results in more estates liable for IHT, increasing the count of estates paying over £500,000 in tax liability. Wealth management experts, such as Rebecca Williams, divisional lead of financial planning at Rathbones, expect this trend to continue as the nil-rate bands remain frozen, despite some softness in the property market.
Changes like the planned IHT application to unused pension funds from April 2027 will likely increase the tax base, intensifying the upward trend in estates liable for substantial IHT payments. Rathbones estimates that 3,524 estates will have to pay over £500,000 in inheritance tax by the end of the 2025/26 tax year.
However, there are ways to lower the tax burden or avoid IHT altogether. Maximising your gift allowances can be beneficial. You can give up to £3,000 of your assets away as a gift each year without it being liable for IHT. This gift allowance can increase to £6,000 if the previous year's allowance was not used.
Our website has a guide that outlines eight ways to reduce your IHT bill. It's crucial for estate owners to be aware of these strategies to minimise their potential IHT liability.
References:
- HMRC Data on Inheritance Tax
- Office for Budget Responsibility Forecast
- Rathbones Report on Inheritance Tax
- HMRC Report on Inheritance Tax Receipts
- Government Announcement on Pension Changes
- The rising number of estates subject to Inheritance Tax (IHT) over the next few years is a trend predicted by the Office for Budget Responsibility (OBR), with forecasts pointing towards over 3,524 estates potentially paying over £500,000 in IHT by 2025/26.
- The growth in IHT receipts and the anticipated application of IHT to unused pension funds from April 2027 are factors that could intensify the upward trend in estates liable for substantial IHT payments, according to a report from wealth management experts at Rathbones.
- To mitigate the potential tax burden or avoid Inheritance Tax altogether, it's crucial for estate owners to be aware of strategies outlined in our personal-finance newsletter, such as maximising gift allowances, which can help reduce the IHT bill significantly.
