Will Inheritance Tax Rise? What UK Families Need to Know About Future Tax Increases

Inheritance tax (IHT) is a subject of growing concern for families across the UK - particularly since the Labour government took office and introduced sweeping changes in its 2024 Autumn Budget. Now, many are asking:

“Will inheritance tax rise?”

The short answer: It already has - and further increases may be on the way.

At Belgravia Capital Wealth Management, we work with families to plan for inheritance tax not just as it is today, but as it’s likely to evolve in the years ahead.

This guide breaks down what’s already changed, what’s likely to change next, and what you can do right now to protect your estate from rising taxation.

Has Inheritance Tax Already Gone Up?

Although the headline IHT rate remains at 40%, several structural changes introduced in the 2024 Budget have already raised the effective inheritance tax burden:

1. Business and Agricultural Relief Cap

• From April 2026, a £1 million lifetime cap will apply to the combined use of Business Property Relief (BPR) and Agricultural Property Relief (APR)

• Any value above this cap will only qualify for 50% relief — leading to a 20% IHT bill where there was previously none

2. AIM Share Relief Reduced

• IHT relief for AIM-listed shares is being cut from 100% to 50%, meaning investors will now face a 20% IHT bill on AIM portfolios above the nil-rate band

3. Frozen Allowances Until 2030

• The £325,000 nil-rate band and £175,000 residence nil-rate band remain frozen until at least April 2030

• With inflation and property growth, this means many more estates will cross the taxable threshold

4. Pensions to Be Taxed From 2027

• From April 2027, unused pensions will be included in the estate for inheritance tax purposes, removing one of the last “IHT-free” wealth vehicles

While the 40% rate has not changed, these policy moves increase the total amount of inheritance tax being collected, effectively raising the tax for a wide range of families.

Could the Inheritance Tax Rate Increase?

Yes, it’s possible, though not yet confirmed.

Here’s why rate increases are on the table:

• Labour has pledged to increase fairness in the tax system

• Public finances remain under pressure, with rising debt, NHS and welfare costs

• The tax base is narrowing, and high-net-worth individuals are seen as a revenue source

• Politically, increasing IHT may be seen as more palatable than raising income tax or VAT

While raising the rate above 40% would be a bold move, it’s not out of the question - especially if targeted at large estates (e.g. £2 million+).

Other Ways IHT Might Rise Without Changing the Rate

Even if the 40% rate stays in place, your tax bill could rise significantly due to other policy changes:

1. Removing or Reducing the Residence Nil-Rate Band

• Labour may see this as an overly generous and unequal allowance

• Removing it would expose an extra £175,000 per person to tax

2. Tightening Gifting Rules

• Currently, gifts fall out of the estate after 7 years

• The government could reduce this period or remove taper relief, increasing tax on lifetime transfers

3. Changing Trust Taxation

• Trusts may be taxed more heavily or subject to new charges

• Could apply to assets already placed in trust, increasing retrospective tax liability

4. Lifetime Receipts Tax

• Labour is reportedly exploring a model where beneficiaries are taxed on everything they receive over a lifetime

• This could lead to higher overall tax for families with intergenerational wealth

What Types of Families Are Most at Risk of a Rising IHT Bill?

• Property-rich households with assets above £1 million

• Business owners, especially those relying on BPR

• Landowners who have used Agricultural Relief

• AIM investors seeking tax-efficient portfolios

• Families with trusts or large life insurance policies not written in trust

• Individuals leaving pension wealth to children or grandchildren

If your estate includes any of the above, you could face a substantially higher IHT bill in the years ahead - even if you’ve done some basic planning.

What Should You Do Now to Prepare for Future Changes to Inheritance Tax?

Waiting for political certainty is not a strategy. Take these steps now to reduce your future tax exposure:

1. Use Reliefs While They Still Exist

• Transfer qualifying assets before April 2026 to take advantage of 100% BPR and APR

• Once the new cap is introduced, you’ll lose this opportunity forever

2. Start the Gifting Process

• Use the 7-year rule while it’s still in effect

• Don’t wait until health or capacity issues make giving complicated or legally restricted

3. Equalise Spousal Estates

• Ensures both partners use their allowances

• Avoids over-concentration of wealth in one estate

4. Put Insurance in Place

• Whole-of-life policies can fund your IHT bill and prevent asset sales

• Must be written in trust to keep proceeds outside the taxable estate

5. Review Trusts and Succession Plans

• Older trust structures may no longer be efficient under new rules

• Review with a professional to avoid unexpected tax bills

Real-World Example: When Waiting Cost a Family £340,000

The Martins owned a family business and three investment properties. In 2023, they were advised to transfer the business to their children and set up a trust for one of the properties.

They decided to wait, hoping for political change.

By 2026, the new relief caps came into effect. Their business only qualified for partial relief, and changes to trust rules meant their structure attracted a new 6% charge. The total tax bill? Over £650,000 - more than double what it would have been.

How Belgravia Capital Wealth Management Can Help you decrease your IHT Burden

We offer strategic planning for families facing rising inheritance tax, including:

• Forecasting IHT under current and future rules

• Gifting and trust strategies

• Portfolio and pension reviews

• Insurance planning to cover future liabilities

• Cross-generational planning for long-term wealth retention

We tailor every solution to your specific needs, and help you act before the window of opportunity closes.

Conclusion: Will Inheritance Tax Rise?

Yes, and in many ways, it already has.

The tax burden on family wealth is growing through policy tightening, allowance freezes, and planned legislative changes.

Whether rates go up or not, the effective inheritance tax bill for most families is set to increase.

Planning today is not just sensible, it’s essential.

Contact us at contact@belgravia-capital.co.uk for a personal, confidential consultation on reducing your inheritance tax exposure.