Rising house prices, frozen thresholds, and small planning mistakes are costing families tens of thousands in inheritance tax in the UK. Are you at risk?
UK Inheritance Tax Was Once a ‘Wealth Tax’, Not Anymore
UK Inheritance tax was originally designed to affect only the very wealthy. But as UK property values have risen and the tax-free threshold has remained frozen, more and more ordinary families are being caught in the net.
As of 2025, the basic inheritance tax threshold (the “nil rate band”) is still just £325,000, a figure that hasn’t changed since 2009.
Add the value of your home, pensions, life insurance, or even joint savings, and you may find that you’re well above the line without realising it.
How Property Prices Are Increasing UK Inheritance Tax Liabilities
The biggest reason for the rise in IHT bills? The family home.
With average UK house prices now exceeding £285,000 and considerably more in the South East or London it’s easy to see how even a modest two-bedroom property can push an estate over the IHT threshold.
Yes, there’s an additional residence nil rate band of up to £175,000 when leaving your home to children or grandchildren. But that still leaves many families exposed especially if:
- You own other properties (e.g., a buy-to-let)
- Your Will isn’t structured to take advantage of exemptions
- Your estate planning hasn’t been reviewed in years
Take the first step to protect your estate. » Get a free, no-obligation IHT review in under a minute and see where you stand.
Common UK Inheritance Tax Mistakes That Cost Families Thousands
Even people with good intentions can end up leaving their family with a tax bill. Some of the most common pitfalls include:
- Not having a will at all
Without one, your estate is distributed according to intestacy laws which may not be tax-efficient or match your wishes. - Gifting too late in life
Gifts made within seven years of death may still count towards your taxable estate. - Leaving everything to children when a spouse is still alive
This can trigger tax unnecessarily, rather than using the spouse exemption first. - Overlooking pensions and life insurance policies
These may be counted as part of your estate unless written into trust.
Trusts are one of the most effective ways to protect your estate and reduce UK inheritance tax. [Learn how trusts can help you avoid IHT here].
If you’re unsure whether your estate might be liable for inheritance tax, it’s worth taking a moment to check.
The Numbers: What Could You Be Facing?
UK Inheritance tax is charged at 40% on the value of an estate above the available threshold.
Example:
An estate worth £750,000 with a nil rate band of £325,000 and a residence band of £175,000 would leave £250,000 subject to IHT meaning a potential tax bill of £100,000.
Without clear planning, even modest estates can end up owing six figures.
How to Reduce or Avoid an Unexpected IHT Bill
If you’re looking to reduce your UK inheritance tax liability, there are several fully legal and HMRC-approved strategies you can put in place.
Make full use of the residence nil rate band
If you’re leaving your main home to children or grandchildren, this additional allowance can significantly raise your tax-free threshold.
Use trusts to protect your assets
Trusts can help control how and when your estate is distributed and in many cases, reduce the portion subject to UK inheritance tax.
Gift earlier and keep clear records
Gifts made more than seven years before your death are usually exempt from IHT. Planning ahead can make a big difference.
Write life insurance policies into trust
If not written into trust, payouts from life insurance could be included in your taxable estate.
Review your estate plan regularly
Life events, law changes, and asset growth can all affect your tax position. Regular reviews help ensure your plan remains tax-efficient.
Each estate is unique. What works for one family may not suit another.
Get a quick IHT assessment in under 60 seconds » It’s completely free, and could help protect more of what you’ve built.
Why It’s Worth Planning Ahead
UK Inheritance tax is often called a “voluntary tax” because with the right planning, it can often be reduced or avoided entirely.
But it requires action before it’s too late.
Doing nothing means your loved ones could end up losing a large portion of the wealth you intended for them through no fault of their own.
Quick Recap: 5 Ways to Stay Out of the IHT Trap
| Tip | Why It Matters |
| Make or update your will | Ensures your wishes are tax-efficient |
| Use your residence nil rate band | Helps protect the family home |
| Consider trusts | Offers flexibility and protection |
| Start gifting earlier | Reduces your taxable estate over time |
| Review regularly | Keeps your plan aligned with current law |
For homeowners over 55, equity release could be a strategic way to pass on wealth while avoiding IHT. [See how equity release fits into IHT planning].
Speak to a Qualified Adviser – Confidential & Practical
Estate planning doesn’t need to be complicated, and you don’t need to figure it out alone. Speaking to an experienced adviser can give you clarity, peace of mind, and personalised steps based on your situation.
- Confidential conversations
- Regulated and personalised advice, not generic tips
- Focused on preserving your legacy
Taking action now could prevent your family from facing an unnecessary UK inheritance tax bill.
Speak to a qualified estate planning adviser today » No pressure. No hard sell. Just guidance to help you make informed decisions.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always do your own research and consult with a regulated financial advisor before making important financial decisions.
