The Treasury is set to collect an additional £700 million in inheritance tax, as tens of thousands of families face the loss of a crucial tax break. The Office for Budget Responsibility has revised its Inheritance Tax forecast upwards by £0.7 billion, predicting a total of £70.6 billion in revenue between 2025/26 and 2030/31. This represents a significant increase of £700 million over the 2025 Autumn Budget forecast.
The primary driver of this increase is a series of reforms announced by Chancellor Rachel Reeves in her 2024 Budget. From April 2027, pension pots will be subject to inheritance tax, a significant shift for savers. This change means that many families who previously relied on pensions as a tax-efficient wealth transfer method may now face a 40% levy on a larger portion of their estate.
Additionally, frozen thresholds and rising property prices are contributing to the expansion of the inheritance tax net. The OBR expects over 16,000 estates to be valued at over £2 million by 2030/31, further boosting the tax revenue. Emma Walker, director at Just Group, a retirement specialist, emphasizes the impact of these changes, stating that the OBR's forecasts highlight the growing profitability of inheritance tax for the Treasury.
The annual inheritance tax receipts are projected to climb from £8.7 billion this year to £14.7 billion by 2030/31. The revised figures indicate increases of £100 million for 2027/28 and £200 million annually thereafter until 2030/31. This trend is further accelerated by the recent changes to the inheritance tax regime, which brought pensions into the scope of IHT, as highlighted by Ms. Walker.
The impact of these changes is particularly significant for middle-income households, as the tax is no longer confined to the very wealthy. Alex Pugh, a financial planner at Saltus, warns that the inclusion of pensions in inheritance tax from April 2027 will have a substantial impact, pulling more families into the tax net. He emphasizes that rising asset values and outdated tax limits create a perfect storm, affecting even those who never considered themselves wealthy.
To navigate this complex landscape, Ms. Walker advises individuals to obtain current valuations of their estates, including property assessments, to understand their potential inheritance tax exposure. She also recommends seeking professional financial advice for effective estate planning, especially for those aiming to maximize the inheritance they can pass on to their loved ones.
