Is Your Estate Heading for an Unexpected Inheritance Tax Bill?

 

Quick Answers

What is the inheritance tax threshold in 2026?

The nil-rate band remains frozen at £325,000. If you own a home and are leaving it to children or grandchildren, you may also qualify for the residence nil-rate band of £175,000, giving a potential individual threshold of £500,000. Married couples and civil partners can combine allowances, potentially passing on up to £1 million IHT-free in the right circumstances.

What rate is inheritance tax charged at?

IHT is charged at 40% on the value of your estate above your available threshold. This reduces to 36% if you leave at least 10% of your net estate to a registered charity.

When will pensions be subject to inheritance tax?

From April 2027, unspent defined contribution pension pots will be included in a deceased person’s estate for IHT purposes. This is a significant change for anyone using a pension as a legacy planning tool.

Why More Families in Essex and East Anglia Are Facing Unexpected IHT Bills

Most people who build up a meaningful estate do so gradually — through decades of mortgage payments, careful saving, pension contributions and the steady growth in their home’s value. Inheritance tax rarely feels like something that applies to “people like us.” But for a growing number of families across Essex, Suffolk and the wider East of England, it does — and often by surprise.

The core problem is a mismatch between rising asset values and frozen tax thresholds. The nil-rate band has not moved since April 2009, when it was set at £325,000. In that same year, the average UK house price was around £154,000. Today it is well over £260,000, and across many parts of our region, considerably higher.¹ A family home that comfortably sat below the IHT threshold fifteen years ago may now represent the largest single driver of a six-figure tax liability.

The Autumn Budget 2024 confirmed that both the nil-rate band and the residence nil-rate band will remain frozen until at least April 2031. The Office for Budget Responsibility projects that annual IHT receipts — already at over £8 billion in 2024/25 — could reach £14 billion by the end of the decade.² More estates will be caught each year, with no policy change in sight.

The Five Things Most Likely to Create an IHT Problem Right Now

1. A home that has grown significantly in value

Property is still the single biggest driver of IHT liability for most families. Even a modest family home in parts of Essex or Suffolk can push an otherwise straightforward estate well above the nil-rate band. According to Nationwide’s House Price Index, the average UK home has risen from £77,698 in April 2000 to £261,692 by April 2025 — nearly three and a half times its value at the turn of the millennium.¹

2. A pension pot that hasn’t been drawn down

Until now, unspent defined contribution pensions have been an effective way to pass wealth to the next generation, sitting outside the taxable estate. From April 2027 that changes. If you have deliberately preserved pension funds as part of your legacy planning, this requires urgent review.

3. No will — or an out-of-date one

Dying without a valid will means your estate is distributed according to the rules of intestacy, which may not reflect your wishes and can create avoidable tax liabilities. According to the 2025 National Wills Report by The National Will Register, only 37% of UK adults have made a will — a fall from around half in previous years.³

4. An unmarried partner

Cohabiting couples do not enjoy the same IHT protections as married couples or those in civil partnerships. There is no automatic spousal exemption and no ability to transfer unused allowances — a fact that can result in a significant and entirely avoidable tax bill for a surviving partner.

5. Complex family arrangements

Second marriages, blended families, or assets held jointly in different ways can all complicate the picture and create gaps that straightforward planning might miss.

What Are the Main Ways to Reduce an IHT Liability?

Making a Will

A valid will is the starting point for any estate plan. Without one, your estate passes under the rules of intestacy and the opportunity to use available exemptions effectively may be lost. A will also allows you to consider leaving a portion of your estate to charity, which reduces the IHT rate on the remainder from 40% to 36%.

Lifetime Gifting

You can give away up to £3,000 each tax year free from IHT, and this can be carried forward one year if unused. Small gifts of up to £250 can be made to any number of people. Larger gifts — known as potentially exempt transfers — can fall outside your estate entirely, but only if you survive for seven years after making them. If you die within three years, the full 40% rate may apply; between three and seven years, a sliding scale of taper relief reduces the charge progressively.

Gifts out of surplus income — regular gifts that do not affect your standard of living — can also be immediately exempt, with no seven-year rule applying. This is a frequently overlooked and genuinely useful planning tool for those with income they do not need to spend.

Trusts

Trusts allow you to transfer assets while retaining a degree of control over how and when beneficiaries can access them. They are particularly useful in complex family situations — for example, where you want a surviving spouse to benefit during their lifetime while ensuring the underlying asset ultimately passes to children from a previous relationship.

The rules around trusts are not straightforward. Different types — discretionary, immediate post-death interest, discounted gift and loan trusts — suit different circumstances and carry different tax implications. A trust that is structured incorrectly can create the very problems it was intended to solve. This is an area where professional advice is essential, and one in which Fiducia has considerable experience.

Life Assurance Written in Trust

A whole-of-life policy does not reduce your IHT bill, but it can provide the liquid funds needed to pay it — preventing your executors from having to sell assets, including the family home, under time pressure. If written in trust correctly, the policy proceeds fall outside the taxable estate. For estates that are largely illiquid, this can be an important element of the overall plan.

Business Relief Qualifying Investments

Business Relief has become one of the most widely used estate planning tools for investors who are not business owners themselves. Originally introduced in 1976 to help family-owned businesses pass between generations without triggering a large IHT bill, it has since evolved into a broader estate planning tool available to any investor.⁴

If you invest in shares in companies that qualify for Business Relief, those shares can become exempt from IHT after just two years — provided you still hold them at the time of death. This is significantly faster than the seven-year clock that applies to gifts and trusts, making BR-qualifying investments particularly attractive for those who begin estate planning later in life.

From April 2026, updated rules apply. For qualifying shares in unquoted companies, 100% IHT relief is available on up to £2.5 million of value, with any value above that attracting 50% relief. For qualifying shares in AIM-listed companies, 50% relief is available regardless of value. The 100% relief allowance will also become transferable between spouses and civil partners — confirmed in the Autumn Budget 2025 — meaning a combined allowance of up to £5 million is potentially available.⁴

Unlike a gift, a BR-qualifying investment remains in your name. You retain control and, if your circumstances change, you can access your capital — though any amount withdrawn would fall back into your taxable estate. Fiducia provides independent advice across the full range of BR-qualifying options available in the market.

Frequently Asked Questions About Inheritance Tax

Can I give my house to my children to avoid inheritance tax?

Giving away your home while continuing to live in it is known as a “gift with reservation of benefit” and HMRC does not treat it as a genuine gift for IHT purposes — the property remains in your taxable estate. There are legitimate ways to pass property to the next generation tax-efficiently, but they require careful professional advice.

Does my spouse inherit everything tax-free?

Assets left to a spouse or civil partner are generally exempt from IHT regardless of value. The nil-rate band unused by the first spouse to die can also be transferred to the survivor, potentially doubling the threshold available on the second death.

Are ISAs subject to inheritance tax?

Yes. Unlike pensions (currently), ISAs form part of your taxable estate and are subject to IHT in the normal way. There is no IHT exemption for ISA savings on death.

How quickly does inheritance tax need to be paid?

IHT is generally due within six months of the date of death, after which interest begins to accrue. In many cases the tax must be paid before a grant of probate is issued — meaning beneficiaries may need to find the funds before they have full access to the estate, which can create real practical difficulties.

Do I need to plan now, or can I wait?

Most IHT planning strategies depend on time. The seven-year rule on gifts only starts when a gift is made. Life cover premiums are lower the younger and healthier you are. And the pension changes coming in April 2027 mean that anyone with a large undrawn pension pot should be reviewing their position now, not after the rules have changed.

How Fiducia Can Help

As Chartered Financial Planners, Fiducia takes a genuinely independent approach to estate planning. We do not favour any single solution — our starting point is always your circumstances: your assets, your family, your income needs in retirement, and what you want your legacy to look like.

Our estate planning process typically covers a full review of your potential IHT exposure, including the likely impact of the 2027 pension changes; an assessment of the most appropriate planning tools for your situation; guidance on gifting, trusts, BR-qualifying investments and life cover; liaison with solicitors for will and trust documentation where required; and ongoing review as your circumstances and the tax rules evolve.

Your first conversation with us is always complimentary and without any obligation.

Call us on 01206 321045 or email email@fiduciawealth.co.uk

Sources

¹ Nationwide House Price Index (nationwidehousepriceindex.co.uk) — figures cited in Triple Point’s Essential Guide to IHT, December 2025

² Office for Budget Responsibility (obr.uk) — IHT receipts forecast, cited in Triple Point’s Essential Guide to IHT, December 2025

³ The National Wills Report 2025, The National Will Register — cited in Triple Point’s Essential Guide to IHT, December 2025

⁴ Triple Point’s Essential Guide to IHT, December 2025 — Business Relief rules and Autumn Budget 2025 confirmation

This article is for information purposes only and does not constitute personalised financial advice. Tax treatment depends on individual circumstances and legislation is subject to change. You should always seek professional advice before making any financial planning decisions. Fiducia Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, No. 3029164.