How inheritance tax is becoming a ‘bill for ordinary households’

Inheritance tax receipts have soared to £3.8 billion this financial year, surpassing the previous year's £3.7 billion, according to HMRC data. The increase stems from frozen tax thresholds and the rising value of assets like houses and investments. The nil-rate band, or the amount someone can inherit tax-free, has remained at £325,000 since 2009, while house prices have climbed, particularly in the South East.

In the South East, the average house price reached £381,000 last month, while in London, it hit £554,000. Amit Joshi, wealth managing director at Mattioli Woods, noted that rising property values and inflation are transforming a tax once for the wealthy into a bill for ordinary households. Sarah Coles, head of personal finance at AJ Bell, warned that frozen bands are "cutting deeper" in the face of higher house prices, leaving many Brits unable to avoid this "much-hated tax".

The Tax Policy Associates predicts that less than five percent of estates currently pay inheritance tax, but this is expected to rise by the next financial year when pensions are included in the tax's scope for the first time. From April 2027, unused pension funds and death benefits will contribute to the value of a person's estate for tax purposes.

Nick Henshaw, head of intermediaries distribution at Wesleyan, said the expected increase in inheritance tax receipts confirms a long-term trend. With frozen thresholds, significant wealth tied up in property, and upcoming pension changes, many previously unaffected estates will now face an inheritance tax bill. Financial planner Lee Quinn cautioned against reading too much into a single set of figures, as monthly receipts can fluctuate.

However, the upcoming Budget will add uncertainty, potentially prompting some homeowners to wait for potential changes. Tax expert Rachel Griffin of Quilter cautioned that while today's figures show the Treasury is benefiting from current tax receipts, it is unclear how much more revenue could be generated from further reforms.