Homeowners could soon be hit by changes to inheritance tax rules as the Treasury reviews how property wealth is treated ahead of the November Budget.
The Institute for Fiscal Studies (IFS) says current rules are “out of date” and have not kept pace with the surge in house prices over the past decade.
With frozen thresholds and higher property values, thousands more households now risk being caught by the 40% inheritance tax rate.
How more homeowners could fall into the IHT trap
Inheritance Tax (IHT) currently is charged at 40% on estates over £325,000, though families passing a home to children or grandchildren can claim a further £175,000 “main residence allowance” - meaning a couple can normally pass on up to £1 million tax-free.
Those limits have been frozen since 2020 while average UK house prices have risen by nearly 25%.
The IFS warns that this freeze means many homes, particularly in the South East and London, now push estates above the threshold.
In its pre-Budget briefing, the think tank said: “Inheritance tax was never designed to affect ordinary families, but house-price growth and unindexed thresholds mean it increasingly does.”
HMRC figures show about 27,000 estates paid inheritance tax in 2020–21, but the IFS expects that number to exceed 50,000 by 2030 if current thresholds remain unchanged, roughly 23,000 more families drawn into the tax over the decade, much of it driven by rising home values.
Broader tax changes that may reshape your home ownership
The Chancellor is expected to consider whether to raise thresholds, adjust allowances, or simplify property reliefs. Each option would have a direct impact on families planning to pass homes to the next generation.
The inheritance tax review is part of a wider look at housing and property taxation in the November Budget, which also includes other measures affecting homeowners:
- Budget threatens homebuilding targets – experts warn higher taxes could slow delivery of 1.5 million new homes.
- Government considers cutting VAT on domestic energy bills – potentially lowering household energy costs.
- “Exit tax” proposals – potential new charges for those selling up and moving abroad.
- Council tax could be doubled in some areas
- A “Mansion tax” is under review – Labour’s proposal to raise funds from properties worth over £2 million.
Together, these potential measures show how property ownership, from first homes to large estates, is central to the government’s fiscal plans.
How homeowners can prepare ahead of Budget changes
Rising house prices mean many homeowners could unexpectedly face inheritance tax. Anthony Gold Solicitors warn: “Many individuals don’t realise their estate could exceed the tax‑free threshold - especially with rising property values, leaving their loved ones with an unexpected tax bill.”
KC Trust adds: “With frozen thresholds and increasing property values, more estates are subject to this tax… Navigating IHT requires professional guidance.”
Homeowners are encouraged to seek professional advice from solicitors or financial planners specialising in inheritance tax. These experts can:
- Review current wills and trusts to ensure they reflect property values and family circumstances.
- Assess estate values to determine if they approach the IHT threshold.
- Explore legitimate planning options, such as lifetime gifts or trusts, to manage potential liabilities.
Taking professional guidance now can help families avoid unexpected tax bills if thresholds remain frozen or the rules change in the November Budget. Any changes are likely to take effect from April 2026.
