Inheritance tax receipts are projected to rise 66 per cent to £15billion in 2031-32, driven by rising property values and widening the number of households affected, the Office for Budget Responsibility said. The Treasury is currently on track to collect £9billion in the current financial year, equivalent to 0.3 per cent of gross domestic product. The OBR attributed the surge to climbing house prices, growing equity holdings, a larger proportion of UK deaths subject to the tax and the impact of policies from the 2024 Autumn Budget.
HM Revenue and Customs collected £8.5billion in inheritance tax in the last tax year, up from £5.3billion five years earlier, representing a 60 per cent increase over that period. This month, HMRC confirmed that September 2026 saw record IHT receipts. Over the past 20 years, receipts have grown from £3.5billion in 2006-07, with the rise partly attributed to increases in the value of taxable assets, particularly residential property, HMRC said.
The frozen nil-rate band of £325,000 and residence nil-rate band of £175,000 remain unfrozen until April 2031, meaning as property values climb, more households will be dragged into the tax net. The regular inheritance tax rate stands at 40 per cent on the portion of estates exceeding these thresholds. Since April 2026, inherited farming assets worth more than £2.5million have faced 20 per cent IHT, following the Government's decision to raise the threshold from an initially proposed £1million after a backlash.
From April 6, 2027, unspent money in pension pots will form part of an estate for inheritance tax purposes, meaning it could be subject to 40 per cent tax. The Government introduced this change to reduce pension use as a wealth-transfer vehicle free from IHT. Funds transferred to spouses or civil partners remain exempt, meaning the change will primarily affect families following the second partner's death. HMRC estimates around 10,500 estates will newly become liable for IHT in 2027-28, while a further 38,500 will face larger bills, with the average amount owed expected to increase by around £34,000 when pension assets are included, according to analysis from Fidelity International.
The OBR said changes to the inheritance tax regime announced since Autumn Budget 2024, including taxing inherited pension pots and altering agricultural and business property reliefs, will account for roughly one-sixth of total revenue by the end of the forecast period. For UK savers and families, the changes mean more households will face inheritance tax bills, and those already liable will owe substantially more, particularly when pension savings are included in their estates.