Inheritance Tax: Why More Families Will Be Affected
Rising property values and proposed pension changes mean increasing numbers of families may face inheritance tax (IHT) in the coming years.
Estates that would once have fallen below tax thresholds are now exceeding key limits – particularly where a family home and pension savings are involved. Many families are unaware that once an estate exceeds certain levels, valuable tax-free allowances can be reduced or lost entirely.
This is an area where early legal advice on wills and estate structure can make a significant difference.
The £2 Million Inheritance Tax Threshold Explained
Most individuals currently have:
- £325,000 inheritance tax allowance
- Up to £175,000 additional allowance where a main residence passes to direct descendants
This can allow up to £500,000 to pass tax-free.
Married couples or civil partners can combine allowances, meaning up to £1 million may be passed on.
However, once an estate exceeds £2 million, the residence allowance begins to reduce.
- Reduced by £1 for every £2 above £2m
Fully removed at:
- £2.35m (individual)
- £2.7m (couple)
Even estates slightly above £2m can face significantly higher inheritance tax.
Pension Changes from April 2027
Pension funds are currently often outside the estate for inheritance tax.
Proposed changes from April 2027 may bring pension funds into the inheritance tax calculation. As pensions are often substantial assets, this could push more estates above the £2 million threshold and reduce available allowances.
Why This Matters for Families
This is no longer an issue affecting only very high-value estates. In London and the Southeast, rising property values mean many families may be affected without realising.
Careful will drafting can help ensure available allowances are preserved where possible.
How Our Solicitors Can Help
We assist with:
- Wills and estate structuring
- Reviewing existing wills
- Protecting family assets
- Probate and estate administration
Important:
We do not provide tax planning or financial advice.
However, we can ensure your will is structured appropriately and work alongside your financial advisers where needed.
Free Will Overview
We offer a free initial Will overview.
This allows us to:
- Review your current will
- Highlight potential issues
- Explain thresholds
- Outline next steps
No obligation to proceed.
Concerned about inheritance tax affecting your estate?
Our experienced solicitors can review your will and explain how current thresholds may apply.
We do not provide tax planning advice.
Frequently Asked Questions
1. What is the £2 million inheritance tax threshold?
The £2m threshold is where the residence nil rate band begins to reduce, potentially increasing inheritance tax liability.
2. What happens if my estate exceeds £2 million?
The residence nil rate band reduces and can be fully lost, increasing inheritance tax exposure.
3. How much inheritance tax is payable?
Typically, 40% on assets above available allowances.
4. Will pensions be subject to inheritance tax?
Proposed changes from April 2027 may include pensions in the estate value.
5. Does leaving everything to a spouse avoid inheritance tax?
Yes, on first death, but tax may arise on second death.
6. Can rising house prices push estates into inheritance tax?
Yes, particularly in London and the Southeast.
7. Do you provide inheritance tax planning?
We do not provide tax planning advice. We advise on wills and estate structure and can work alongside advisers.
8. What is a free Will overview?
A short consultation to review your position and highlight issues.
9. When should I review my will?
Every 3-5 years or when assets change.
Disclaimer: This article is provided for general information only and does not constitute legal advice. The law may change and individual circumstances vary. You should seek specific legal advice before taking or refraining from any action.