More pensioners may face an inheritance bill than they think, but it can be reduced (Image: Getty)
Historic figures suggest fewer than 5% of estates pay IHT, but that no longer gives the full picture. That’s because they only count people who have died and paid a bill, while new research looks at the living and asks how many pensioner households could potentially face one today. With thresholds frozen while asset values rise, it now turns out that one in five pensioners households would potentially get caught from next April.
Respected tax expert Dan Neidle of Tax Policy Associates is the one doing the number crunching. That figure is a shock. If correct, it means 20% of pensioner households in England and Wales could have enough assets to fall within IHT from next April, four times as many as previously assumed. This makes it even more vital they plan to reduce their potential liability.
Neidle stressed that his figures don’t mean one in five will actually end up paying the tax. Instead, it’s a snapshot of how many pensioner households have assets that would be above the relevant thresholds if they died today. This takes into account both the £325,000 nil-rate IHT band and £175,000 main residence band, used when passing on family homes to direct descendants such as children and grandchildren.
In practice, the number paying IHT will be lower, as many will steadily reduce their exposure over the years, both through careful planning such as gifting to children and grandchildren, and by spending money on holidays, paying social care fees, and so on.
But the risk is clearly there and it will continue to rise, with IHT nil-rate bands and IHT-free gifting allowances frozen until 2031. IHT receipts hit a record £8.5billion in 2025/26, but the Office for Budget Responsibility reckons they’ll hit £15billion over the next five years.
From April 2027, Labour will bring most unused pension funds and death benefits into the IHT net. Government estimates suggest this will result in an additional 10,500 estates paying IHT each year, taking the total to almost 50,000. Some will receive just 33% of an inherited pension, which is outrageous.
Conservative Party leader Kemi Badenoch has vowed to abolish IHT in power, once it’s “fiscally responsible” to do so. That pledge has proved a vote winner before, but that may not be the case today. Neidle’s analysis found that abolishing IHT may have a limited impact on voting behaviour: “The main reason is that so many pensioners already vote Conservative.”
Neither Labour nor Reform seem likely to abolish IHT. If anything, an Andy Burnham government could tighten it. IHT is charged at a punitive 40% above the available tax-free thresholds, so understanding the value of property, savings, investments and pensions is more vital than ever. Here are just some of the ways pensioners are fighting to pass on wealth to loved ones, rather than HMRC.
Amit Joshi, managing director of wealth at Mattioli Woods, said frozen thresholds, rising property values and inflation were turning what was once a tax for the wealthy into a bill for ordinary households. “Estates that would have paid nothing a decade ago are now automatically liable.” Small mistakes can cost your dear – this one costs £226,000 on average.
Joshi said many families often only realise the danger when it’s too late to act. “Regularly reviewing wills and estate plans, and seeking professional financial advice, is no longer optional,” he said.
