The amount collected by the UK Treasury from inheritance tax (IHT) is projected to increase significantly in the coming years, with receipts expected to jump 66% to £15 billion by the 2031-32 financial year. The Office for Budget Responsibility (OBR) forecasts that IHT revenue will reach £9 billion in the current financial year, a figure representing 0.3% of Britain's gross domestic product. This increase is attributed to rising house prices and equity, a growing proportion of deaths subject to IHT, and policy changes enacted since the 2024 Autumn Budget.
HM Revenue & Customs (HMRC) collected £8.5 billion in IHT in the last tax year, an increase of approximately 60% from the £5.3 billion collected five years prior. The OBR noted that IHT receipts for September 2026 were the highest on record. The nil-rate band for IHT, which allows individuals to pass on assets tax-free, has been frozen at £325,000, with the residence nil-rate band remaining at £175,000. These thresholds were extended to remain frozen until April 5, 2031, following policy announcements in the 2024 Autumn Budget and the 2025 Autumn Budget.
As property values continue to rise, more households are expected to fall within the scope of IHT due to the frozen thresholds. Since April 2026, inherited farming assets valued above £2.5 million have been subject to a 20% IHT rate. This threshold was initially announced as £1 million but was later raised by the Labour party following a backlash, with provisions for spousal transfers potentially protecting up to £5 million in value.
A significant change is scheduled to take effect from April 6, 2027, when unspent money remaining in pension pots will become subject to IHT. This measure aims to curb the use of pensions as a vehicle for passing on wealth tax-free. While funds transferred to a spouse or civil partner will remain exempt, the change is expected to impact families particularly on the second partner's death. Currently, most personal and workplace pensions fall outside IHT purview, especially for individuals aged 75 or under.
Marianna Hunt of Fidelity International estimates that this change could result in approximately 10,500 estates becoming liable for IHT in 2027-28, with an additional 38,500 estates facing higher bills. For those already subject to IHT, the average amount owed is projected to increase by around £34,000 when pension assets are included.
IHT receipts have grown substantially over the past two decades, rising from £3.5 billion in 2006-07 to £8.5 billion in 2025-26. HMRC attributes earlier increases to rising asset values, particularly in residential property between 2006 and 2008. The increase in IHT receipts during the 2020-2021 tax year was partly attributed to a higher number of wealth transfers amid increased mortality rates during the COVID-19 pandemic. The continued freezing of IHT thresholds is a primary driver of the ongoing rise in receipts.
The OBR's forecast indicates that a significant portion of future IHT revenue will stem from recent policy changes, including the taxation of inherited pension pots and adjustments to agricultural and business property reliefs, which together are expected to account for about one-sixth of total revenue by the end of the forecast period. The OBR acknowledges considerable uncertainty surrounding behavioral responses to these measures and the tax base for inheritable pension wealth.