Inheritance tax (IHT) is undergoing a significant transition. While only around 4% of estates are currently subject to IHT, that figure is expected to rise in the years ahead. Recent research by Irwin Mitchell, the legal firm, projects the proportion of estates liable for IHT to climb to 5% by 2027 and 7% by 2028, a shift driven largely by government policy and structural economic changes.

At ProVen, we believe this evolution underscores the importance of proactive and strategic estate planning. As the IHT landscape becomes more complex, our ProVen Estate Planning Service (PEPS) is designed to help individuals and families navigate the new terrain.

1. The expanding reach of inheritance tax

One of the most impactful drivers of the rising IHT burden is the freezing of the nil-rate band at £325,000. This threshold – the level below which an estate is subject to a zero rate of inheritance tax – has not been updated since 2009 and it has therefore not kept pace with rising property prices nor inflation.

The government’s decision in the Autumn Budget of 2024 to extend the freeze until 2030 means many more families, particularly in high-value areas, will find themselves within the IHT net.

In its analysis of the growing IHT burden on UK taxpayers, Irwin Mitchell projects that:

• IHT due in Greater London will rise by 54% between 2022 and 2027, reaching £2.6bn a year.

• The average IHT bill in Inner London could hit £340,000 by 2026/27.

• Ten UK postcodes could see the number of IHT-liable estates double between 2021/22 and 2026/27.

• Major cities such as Leeds, Manchester, and Birmingham are also forecast to experience double-digit increases.

2. A storm of policy reforms

In addition to threshold freezes, recent and upcoming policy reforms are poised to further widen the IHT net.

From April 2026, the ability to claim 100% relief through Business Property Relief (BPR) and Agricultural Property Relief (APR) will be capped at the first £1m of qualifying property. Anything above that threshold will subsequently only receiving 50% relief.

The Office for Budget Responsibility (OBR) estimates these changes will affect 1,440 estates for BPR and 130 estates for APR in the 2026/27 tax year, generating an additional £200m in revenue. Additionally, shares listed on AIM, previously eligible for full BPR, will also be limited to 50% relief regardless of value.

Looking further ahead, from April 2027, unused pension funds will be included in the value of an individual’s estate for IHT purposes, subject to the 40% tax rate. This is a major shift from the previous exemption pensions enjoyed and could bring an estimated 10,000 additional estates into scope for IHT. Estimates from Quilter, the wealth manager, show that by 2029/30, more than 12,000 estates will exceed the £2m mark, equivalent to 44.5% of those liable for inheritance tax.

3. Implications for individuals

The combined impact of threshold freezes, rising asset values, and impending reforms to pensions, BPR, and APR means that estate planning is becoming both more critical and more complex.

Individuals and families will need to reassess their financial strategies, reconsidering the role of gifting, trust structures, and pension arrangements, to protect wealth and ensure efficient succession.

For business owners and agricultural estates in particular, the new relief caps may necessitate proactive restructuring to avoid unexpected liabilities.

4. How PEPS can help families plan ahead

In response to these challenges, the ProVen Estate Planning Service (PEPS) offers a flexible and effective approach to mitigating inheritance tax. The service offers individuals the opportunity to mitigate IHT liabilities, provided shares are held for at least two years at the time of death.

PEPS is designed not only to help individuals to mitigate IHT liabilities but to also offer steady returns throughout their investment as well as a degree of access and optionality, aligning with the needs of those looking for a more controlled and transparent estate planning solution.

Find out more about PEPS here.

This article is for UK residents interested in finding out more about Business Relief. It is not our intention to offer legal, tax or investment advice, and we always recommend that investors seek professional advice that can take account of their personal circumstances before making any investment or estate planning decisions. An investment in the ProVen Estate Planning Service should be considered high risk.

Important notice: issued by Beringea LLP of Charter House, 55 Drury Lane, London, England WC2B 5SQ, registered in England & Wales number OC342919 and authorised and regulated by the Financial Conduct Authority, number 496358.