Inheritance Tax (IHT) bills have reached unprecedented levels in the UK, with HMRC reporting a record £2.3bn collected in the three months leading up to June 2026 – a notable increase of £96m compared to the same period last year. The accelerating trend is driven by the prolonged freeze on income tax thresholds, which has pushed more estates into paying IHT, including those not traditionally considered wealthy.
The freeze, first extended by former Chancellor Rachel Reeves in last year's Autumn Budget and set to continue until 2031, has had a devastating impact on UK households. Traditionally, these thresholds would be adjusted for inflation, preventing individuals from being pushed into higher tax brackets due to cost-of-living pay rises. However, the current freeze, coupled with rising asset prices, means that more estates are now liable for IHT.
The Treasury's projections suggest that IHT receipts will continue their upward trajectory, driven by increased wealth transfers and appreciating asset values. The inclusion of unused pension pots within the scope of IHT from April 2027 is also expected to contribute to higher bills for estates, adding complexity to financial planning. Industry experts warn that drastic changes to the existing system could alienate top earners and hamstring higher-rate taxpayers.
Prime Minister Burnham has inherited this pressing issue, sparking debate within the industry about the future of wealth taxation. While Burnham has advocated for reform and explored alternatives to IHT, any significant changes require careful balancing against broader economic priorities. Industry figures have cautioned that raising income tax thresholds or increasing the top rate could place a disproportionate burden on middle-class Britons.
Some propose raising the income tax threshold from £12,570 while maintaining higher and additional rate thresholds at current levels. However, this approach has drawn criticism for unfairly targeting middle-class households with significant costs such as childcare and rent. Others suggest increasing the top rate of income tax to 50 per cent – a move that Prime Minister Burnham believes has "definite merits". Mark Jephcott, senior relationship manager at Upmost, warns that rising IHT bills are making the UK "a less competitive destination for entrepreneurs, investors, and internationally mobile wealthy individuals."