The Treasury is set to collect a staggering £70.6 billion in Inheritance Tax between 2025/26 and 2030/31, a £700 million increase from the Autumn Budget 2025 forecast. This surge in revenue is attributed to significant changes affecting savers, with pension pots falling under the Inheritance Tax scope from April 2027. The Office for Budget Responsibility (OBR) predicts that over 16,000 estates will be valued at over £2 million by 2030/31, further boosting the tax take. This shift means many families who previously relied on pensions for tax-efficient wealth transfer could face a 40% levy on a larger portion of their estate. Additionally, frozen thresholds and rising property prices are dragging more estates into the tax net, impacting middle-income households and pushing up revenues. Emma Walker, director at Just Group, highlights the lucrative nature of inheritance tax for the Treasury, with annual receipts climbing from £8.7 billion this year to £14.7 billion by 2030/31. The revised figures show increases of £100 million for 2027/28 and £200 million annually thereafter. A little-known tax trap, the residence nil rate band, strips estates of their allowance once they exceed £2 million in value. This additional £175,000 allowance disappears at a rate of £1 for every £2 above the threshold, vanishing entirely at £2.35 million for individuals or £2.7 million for couples. Wealth manager Quilter estimates that 5,613 estates will surpass £2 million by 2027-28, rising to 16,000 by 2030-31. HMRC data reveals that just 3,620 estates liable for IHT exceeded this level in 2022-23. Sean McCann from NFU Mutual illustrates the impact: a single person with a £2 million estate plus £500,000 pension currently faces a £600,000 bill, jumping to £870,000 from April 2027. This could strip families of their tax-free allowance on the family home, creating a 'triple blow' when combined with potential income tax charges on beneficiaries. Ms. Walker urges people to obtain current valuations of their estates, including property assessments, to understand their likely IHT exposure. Alex Pugh, a financial planner at Saltus, warns that bringing pensions into Inheritance Tax from April 2027 will significantly impact families. He states that many people will drift into the tax net without realizing it, and even those who never considered themselves 'wealthy' could be affected. It's a perfect storm created by rising asset values and outdated tax limits, with older homeowners, unmarried couples, and those who have made large gifts potentially exposed, especially with thresholds frozen since 2009.
