- The average tax bill for an IHT-paying estate increased to £231,000, up 9% year-on-year according to HMRC stats
- HMRC statistics show a 5% jump in inheritance tax (IHT) liabilities and shine a light on the composition of the tax take
- Frozen allowances mean the proportion of deaths resulting in an IHT charge rose to 4.72%, the highest level since 2006/07
- Exempt transfers between spouses continue to top the list of reliefs by value, helping shield £6.8 billion from tax on first death
- Combined value of business and agricultural property relief soars to nearly £6 billion
Charlene Young, senior pensions and savings expert at AJ Bell, comments on the latest HMRC annual inheritance tax statistics:
“These figures show how Inheritance Tax (IHT) has become a growing concern for more families, three years before we see the impact of Labour’s death tax raid on businesses, farmers and unused pensions. Although only around 5% of estates pay the tax, the amount being collected continues to hit new records as property values and investment wealth have risen while key tax thresholds have remained frozen.
"Many people still view IHT as a tax on the very wealthy, but years of house price growth have brought more ordinary families into scope. Everyone can pass on up to £325,000 before any IHT is due, although this IHT nil rate band has been frozen since 2009. The residence nil rate band (RNRB) has been available since 2017 and gives a boost of up to £175,000 per person if a property is left to their direct descendant(s). A combination of these bands means most couples can pass on up to £1 million on second death. But had both bands been uprated with inflation rather than being frozen in 2020, a couple could currently pass on an estate worth over £1.49 million combined, a figure which could rise to over £1.62 million by the time the freeze is due to end in April 2031. In fact, the main nil rate band alone would be worth around £520,000 today had it been indexed, more than the combined value of the two frozen bands for one person.
“Government policy is set to turbocharge the IHT tax take, with former Chancellor Rachel Reeves extending the freeze on thresholds, which is now set to last over twenty years. The decades-long freeze to the nil rate bands has dragged households into the taxman’s death duty, with the addition of the complicated RNRB only providing some respite. To make matters worse, unspent pension savings will also be snared by IHT from 2027, adding more fuel to the fire. If you’re at all concerned about IHT and want to make sure you manage your affairs tax efficiently and avoid serving your family an undue tax bill it is well worth speaking to a financial planner for some expert help.”
Government inheritance tax take
Source: AJ Bell/HMRC Annual summary of HMRC tax receipts for the UK, 21 July 2026
Value of the nil rate band and residence nil rate band when indexed to inflation
Source: AJ Bell
The effective rate of IHT
“Although the headline rate of IHT is 40%, a combination of the reliefs means the rate of tax paid by estates facing a bill is much lower. This is illustrated in the effective tax rates paid by estates with an IHT liability.
Source: HMRC, average effective rate of tax paid by taxpaying estates, split by net estate value
“Aside from the universal nil rate band, and the potential to use the additional residence option to increase it, investors can make plans in their lifetimes to benefit from reliefs and exemptions when they die and pass on wealth.
“The effective rate begins to rise as the value of the estate goes up, with families paying the largest death duties to the taxman are found in the £2 million to £7.5 million bands, where they hand over more than 25% in tax.
“Whilst estates up to £2 million can make most use of the reliefs and allowances, the RNRB starts to taper down for estates over £2million, until it is lost altogether from £2.7 million upwards.
“The effective rate starts to trend down for the largest estates, which are the most likely to use the 100% reliefs on offer for business property and agricultural assets, which have since been restricted from April 2026.”
The value of exemptions and reliefs
“The data also highlights the importance of estate planning. Transfers between spouses and civil partners remained the largest exemption, with £6.8 billion passed tax-free between partners. Although anything transferred to a UK resident spouse or civil partner in your lifetime or on your death is exempt from IHT, this exemption doesn’t apply to gifts between unmarried partners, even if you have lived together for many years.
“Business Property Relief and Agricultural Property Relief also continued to play a significant role, reducing the value of chargeable estates by a combined £5.96 billion. Looking back over the past two years this was a rise in value of over 34%, and a 13% jump year on year.
“Most of this increase was down to a rise in the value of BPR, which was worth £3.85 billion and used by 4,060 estates, making it the second most valuable of all the IHT reliefs. Full IHT relief has been available for the business assets of trading companies held for over two years before death, with land and machinery benefiting from a 50% reduction in taxable value. Reliefs available for agricultural property operate in a similar way and are designed to prevent family business and farms facing the pressure of stopping trading or being sold to fund IHT bills.
“But measures announced by ex-Chancellor Rachel Reeves mean that from 6 April 2026, a £2.5 million allowance has applied for full relief on qualifying assets, with a lower 50% rate of relief above this limit. It will allow spouses or civil partners to pass on up to £5 million in agricultural or business assets. Shares on the UK AIM market that previously qualified for 100% relief have seen this restricted to 50%.
"These reforms, plus unused pensions and death benefits being brought into the value of estates from 2027 mean estate planning is likely to become an even bigger focus. Families should ensure they understand how their assets will be treated and seek regulated financial advice to help plan efficiently and avoid costly mistakes.”
Could the system be flipped on its head?
“Prime Minister Andy Burnham wants to grasp the nettle on social care reform, but questions are being asked about how this will be funded. One proposal that is rumoured to be on the table is to transform the landscape completely and replace IHT with a flat 10% estate levy.
“At the moment, fewer than one in twenty estates pay Inheritance Tax, but they can face a headline rate of 40% above the available allowances. A flat-rate estate levy would potentially reduce the burden for some estates, particularly those impacted by the tapering of the residence nil rate band, while extending a charge to many families who currently pay no IHT at all, dramatically widening the number of estates affected.
“The debate is shifting from whether the UK should continue with a relatively high tax on a small minority of estates or move to a much lower rate applied far more broadly. For families currently relying on generous nil-rate bands and exemptions, the eventual outcome could be very different from the system reflected in these latest HMRC figures.”
