Inheritance Tax Hits Record £8.2 Billion: What Rising Property Values Mean for Investors and Families

Frozen thresholds and surging house prices push more families into the inheritance tax net. What does this mean for property owners, and how can you plan ahead?

Inheritance tax (IHT) has long been a sensitive topic in UK property circles. For many, it feels like a double blow, working hard to build wealth, only for a significant portion to be claimed by the government when it is passed on.

Now, new figures show that IHT receipts have hit an all-time high. HMRC collected £8.2 billion from inheritance tax in the 2024-2025 tax year, a jump of nearly 10% from the previous year’s total of £7.5 billion.

A major reason? The combination of frozen tax thresholds and rising property values means more estates are now exposed to the tax, even if they would not previously have been considered ‘wealthy.’

In this article, we unpack the latest data, explain what it means for property investors, landlords, and homeowners, and offer practical insights on how to navigate the evolving inheritance tax landscape.

The Numbers Behind the Surge

According to HMRC:

• Inheritance tax receipts increased by £700 million year-on-year
• The nil-rate band (£325,000) and residence nil-rate band (£175,000) have been frozen since 2009
• Rising house prices have pushed thousands of additional estates over the tax threshold
• Property accounts for approximately 38% of the average taxable estate

With property prices rising steadily in many regions, especially outside London, more ordinary families are now finding themselves liable for substantial inheritance tax bills.

And it is not going to ease off anytime soon. Forecasts suggest that by 2030, inheritance tax will bring in an additional £1.98 billion per year unless thresholds are updated.

Why More Estates Are Being Caught

The core problem lies in a policy known as ‘fiscal drag.’

In simple terms, when thresholds for allowances stay frozen, but asset values rise, more people get pulled into the tax system. Inheritance tax thresholds have not risen for 15 years, while the average UK house price has grown by more than 60% over the same period.

Today, even modest family homes in areas like Hertfordshire, Surrey, Bristol, and Manchester can easily push an estate over the combined £500,000 threshold.

For married couples or civil partners, the allowances can be combined to £1 million if the estate includes a primary residence left to direct descendants. But even this ceiling is being tested in high-value property markets.

Without reform, more middle-income families are likely to face substantial inheritance tax exposure over the coming years.

Impact on Property Owners and Investors

For property investors, landlords, and homeowners, the new data brings both warnings and opportunities.

1. Estate Planning Is Now Essential

Anyone holding significant property assets must actively plan for inheritance tax, not assume it will not apply to them.

Strategies could include:

• Using trusts to manage and pass on assets
• Gifting property or equity during one’s lifetime
• Ensuring use of all available reliefs, such as agricultural or business property relief

Professional advice is essential. Without careful planning, an estate’s tax liability could significantly reduce the amount passed to heirs.

2. More Demand for Lifetime Gifting

As awareness grows about inheritance tax thresholds, more property owners are exploring lifetime gifting strategies.

Transferring property or financial assets before death can reduce the size of an estate, provided the gift is made seven years or more before the donor’s death.

However, gifting property carries risks, including potential capital gains tax liabilities and the loss of control over assets. Property professionals should be ready to advise clients on structuring these transfers carefully.

3. Impact on Buy-to-Let Portfolios

Landlords with large portfolios are especially vulnerable to inheritance tax charges, particularly if their properties have appreciated significantly in value.

Options such as:

• Incorporating portfolios into company structures
• Selling selected assets during one’s lifetime
• Using debt strategically to reduce net estate value

are becoming more common. Again, tax and legal advice is vital to avoid unintended consequences.

Regional Differences

The impact of rising IHT bills is not uniform across the UK.

• In London, despite a softening of house prices in some boroughs, property values remain among the highest in the country, pushing many estates over the threshold
• In commuter towns like St Albans, Winchester, and Guildford, the combination of high property prices and frozen thresholds is causing significant pressure
• In Scotland, where different inheritance laws apply, property owners are also feeling the pinch, although the impact is somewhat less severe due to generally lower average house prices

Understanding these regional dynamics is key for professionals advising clients on wealth and succession planning.

Future Policy Changes to Watch

There is increasing political pressure for reform.

Critics argue that inheritance tax now affects too many middle-income families, and that the original intent, taxing the wealthiest estates, has been distorted.

Potential changes under discussion include:

• Raising the nil-rate band in line with inflation
• Adjusting the residence nil-rate band or making it easier to qualify
• Introducing sliding scales based on estate size rather than flat rates
• Simplifying rules around gifting and lifetime transfers

While there is no guarantee of immediate reform, property owners and investors should stay alert to political developments, especially in the lead-up to general elections.

Practical Steps for Property Professionals and Owners

Given the increasing relevance of inheritance tax, here are five practical steps property professionals and their clients should consider:

1. Review Asset Values Regularly

Property markets move. Estates that were below the IHT threshold five years ago may now be well above it. Regular portfolio valuations help inform planning decisions.

2. Engage Specialist Advisors

Inheritance tax planning often involves complex interactions between property law, trust law, and tax law. Specialist advice ensures strategies are robust and compliant.

3. Use Available Reliefs Strategically

Agricultural property relief, business property relief, and the residence nil-rate band can all significantly reduce tax liabilities when used correctly.

Professionals should ensure clients are aware of these options and structure assets accordingly.

4. Consider Lifetime Planning

The earlier inheritance planning starts, the more options are available. Lifetime gifting, property transfers, and strategic restructuring all become harder to implement as time horizons shorten.

Encouraging clients to act early is key.

5. Communicate with Heirs

Effective succession planning is not just about tax minimisation. It is also about preparing the next generation to manage assets responsibly.

Open conversations about intentions, plans, and structures can reduce future conflicts and misunderstandings.

Final Thought

The record-breaking £8.2 billion inheritance tax haul is not just a statistic. It is a wake-up call for property owners, investors, and advisors across the UK.

Frozen thresholds and rising property values are quietly redrawing the lines of who pays inheritance tax. More ordinary families are being caught, and the sums involved are significant.

The good news is that with early planning, strategic advice, and careful structuring, exposure to inheritance tax can often be minimised or managed effectively.

For property professionals who can guide clients through this evolving landscape, there is a real opportunity to add value, build trust, and protect wealth for future generations.