Will Inheritance Tax Go Up? What Rising Tax Pressures Could Mean for Your Estate

Belgravia Capital
May 31
4 min read

With government budgets under strain and inheritance tax (IHT) receipts at record highs, many families are asking a simple but pressing question:

“Will inheritance tax go up?”

At Belgravia Capital Wealth Management, we believe this is one of the most important questions UK families should be considering in 2025 and beyond - not just in terms of tax rates, but in how your estate may be increasingly exposed over time due to policy changes and frozen allowances.

In this article, we explain the current IHT landscape, explore whether a rise in rates or a tightening of rules is likely, and what proactive steps you can take to protect your estate before any changes arrive.

The Current Inheritance Tax Rules (2025)

40% tax rate on the value of your estate above the £325,000 nil-rate band
£175,000 residence nil-rate band if passing a home to direct descendants
Combined, couples can pass on up to £1 million tax-free
Above this, IHT is due — unless reduced via gifts, trusts, or reliefs
All allowances are frozen until at least April 2028

This freeze means more families are paying IHT each year, as property and investment values rise with inflation.

Are Inheritance Tax Rates Likely to Increase?

While there is no formal proposal on the table to raise the 40% rate, there are strong reasons why your IHT bill could increase over time even without an official rate hike.

Let’s look at why.

Threshold Freezes Are a “Stealth Tax”

The nil-rate band has remained frozen at £325,000 since 2009
The residence nil-rate band has been frozen at £175,000 since 2020
As house prices and asset values increase, more estates breach these thresholds
This increases the effective tax rate on estates, even if the headline rate doesn’t change

More Estates Are Paying IHT

In 2019, just over 4% of estates paid IHT
By 2025, this has risen significantly as more middle-income families are affected
HMRC collected £7.5 billion in IHT in 2023–24, a record figure

Public Spending Pressures Make Increases More Likely

With rising costs in healthcare, pensions, and infrastructure, the Treasury may look for ways to raise revenue
IHT, though politically unpopular, is a high-yield, low-administration tax for the government

Will a Future Government Increase the IHT Rate?

It’s possible, especially under a different political leadership or in response to economic pressures. Here’s what to consider:

Conservative Party

Some MPs favour cutting or abolishing IHT
Others support keeping it as a way to fund public services
Have not raised the rate - but have frozen allowances, which increases liabilities

Labour Party

May not raise the 40% rate but could tighten reliefs and exemptions
Could reduce or remove Business Relief or Trust-related reliefs
More likely to target wealth preservation structures than change the headline rate

This Labour government have already tightened rules around land relief for IHT and brought pensions into estates for IHT purposes (starting in 2027). There is every chance they will go further with the taxation of intergenerational wealth.

Could Other Changes Effectively Raise Inheritance Tax?

Yes. Even if the rate remains at 40%, your tax liability could increase if:

The nil-rate band is reduced in real terms (via inflation)
Reliefs like Business or Agricultural Relief are limited or removed
Gifting rules (e.g. 7-year rule or taper relief) are revised
Trusts become subject to stricter IHT treatment

In all these scenarios, you pay more tax - even if the headline rate doesn’t change.

What Can Families Do to Prepare for a Rise in IHT?

Smart planning now can protect your estate from future increases.

Make Lifetime Gifts

Gifts made more than 7 years before death fall outside your estate
Use annual gift allowances and gifts from surplus income

Use Trusts

Move assets into trust during your lifetime
May reduce the size of your estate and future tax liability

Use Insurance to Cover IHT

Take out a whole-of-life policy in trust to cover the expected tax bill
Ensures your heirs can pay the tax without selling assets

Claim Business and Agricultural Relief Where Applicable

Pass business or farm assets on tax-free (100% or 50% relief)
But these reliefs could be tightened in future - act while they still apply

Structure Your Will Tax-Efficiently

Maximise use of both spouse’s allowances
Make use of charitable legacies (to reduce IHT from 40% to 36%)

Why You Shouldn’t Wait for Political Certainty when Planning for Inheritance Tax

Waiting for government policy changes can be costly:

You may miss out on today’s generous allowances
Reliefs may be grandfathered (i.e. protected for those who acted before a cut)
Tax planning takes time - you can’t “retroactively” protect your estate after legislation changes

The best time to act is now, while the rules are known and the opportunities are clear.

How Belgravia Capital Wealth Management Can Help you with Inheritance Tax Planning

We help families:

Project their inheritance tax liability
Structure their estates with flexibility and tax efficiency
Create gifting strategies and trust structures
Implement insurance policies to protect inherited wealth
Adapt plans as political and economic landscapes shift

We work in partnership with legal and tax professionals to provide fully integrated estate planning.

Conclusion: Will Inheritance Tax Go Up?

Maybe not in rate - but almost certainly in impact.

Frozen allowances, rising asset values, and growing government spending mean more estates will face higher IHT bills in the years ahead - even if the 40% rate stays the same.

Don’t leave your estate exposed to future tax hikes.