Rising property prices, frozen tax thresholds, and looming pension reforms are quietly reshaping how much inheritance tax (IHT) UK families pay.
The Nil Rate Band (NRB) and Residential Nil Rate Band (RNRB) have been frozen at their current values until April 2030, with the NRB and RNRB last seeing an increase in 2009 and 2020 respectively.
Another major legislation change to note is that from April 2027 Pensions will form part of a person’s estate in England & Wales for IHT purposes.
Arbaaz Mehmood, Paralegal in our Wills, Trusts and Probate team at Jackson Lees, explores how these changes affect you, what you can do to mitigate your liability, and why early planning is more important than ever.
What Are the NRB and RNRB and Why Do They Matter?
The NRB is the standard IHT allowance, currently £325,000, whilst the RNRB offers an additional £175,000 when passing your main residence to direct descendants. For example, your children or grandchildren.
It’s no secret that property prices have continued to rise year on year in the UK, with average prices currently at £268,400 as of May 2025.
As such, a larger proportion of an individual's IHT free allowances are taken up by the value of their home, and with no change of the NRB and RNRB rates in sight, estates are quickly becoming taxable.
If instead the NRB had risen with inflation by 2029/30, it would be roughly £550,000, meaning an individual would have an additional £125,000 of available allowances before any IHT would be payable in their estate.
How Will the 2027 Pension Reform Affect Inheritance Tax?
From 6 April 2027, pensions will be treated as part of your estate for IHT purposes.
The combination of rising house prices and pensions being subject to IHT means the average person’s estate is more likely to become subject to IHT which is typically taxed at 40%.
What does this look like in numbers?
Assuming your estate is worth £650,000, with the entirety of your estate passing to your children according to your Will.
Main Residence - £350,000.00
Cash savings - £150,000.00
Pension - £150,000.00
The RNRB of £175,000.00 will be put towards your main residence and then the NRB of £325,000.00 will go towards the remainder of your estate. Effectively, reducing the value chargeable to IHT £150,000.00 i.e. the value of the pension.
The pension will be taxed at 40% in this case – translating to a sizeable £60,000.00 IHT liability. Remember, if the NRB and RNRB had been index-linked to inflation, the liability would be lower or may not even exist. This is affecting the average person more and more.
Can I Reduce My IHT Liability Through Gifting?
The rules on making gifts to people during your lifetime are available for everyone to use. If applied correctly, they can significantly reduce your estate’s IHT liability. However, if the rules aren’t followed precisely, or if any gifting isn’t clearly recorded, they can just as easily cause issues or work against reducing your IHT liability after you’ve passed away.
So, what can I do to mitigate my IHT liability?
Inheritance tax planning isn’t just for the wealthy, it’s increasingly relevant for the average UK homeowner. At Jackson Lees, we offer tailored legal advice to help you:
- Construct your Will in the most tax efficient way, ensuring your wishes are clear and your estate is protected.
- Refer you to one of the many trusted financial advisors as part of our extensive network, who can help reduce any potential IHT liability linked to your pension, especially with the changes coming into effect from April 2027.
We understand that no two estates are the same. That’s why we take the time to understand your circumstances and match you with the right professionals to protect your legacy.
Is Inheritance Tax Becoming a Stealth Tax?
The simple answer is yes. With frozen thresholds, rising property values, and pensions soon to come under the remit of IHT, many families are facing unexpected IHT bills.
While these changes may not be labelled as a tax hike, the impact is real and growing. The good news? You can take action now.
How can Jackson Lees Help?
Whether it’s reviewing your Will, making strategic gifts, or preparing for the 2027 pension reform, our team at Jackson Lees is here to help.
We’ll guide you through every step, ensuring your estate is protected and your loved ones benefit from your legacy, not a tax bill. Please give us a call, request a callback or make an enquiry to find out how we can help.