The Office for Budget Responsibility has raised its Inheritance Tax forecast by £0.7billion, as tens of thousands of families brace for the loss of a key tax advantage.
Fresh figures published at today’s Spring Statement show the Treasury is now expected to collect £70.6 billion in Inheritance Tax between 2025/26 and 2030/31.
That is £700million more than was forecast at the Autumn Budget 2025.
The increase comes as major changes loom for savers. From April 2027, pension pots will fall within the scope of inheritance tax under reforms announced by Chancellor Rachel Reeves in her 2024 Budget.
That shift means many families who previously relied on pensions as a tax-efficient way to pass on wealth could see more of their estate exposed to the 40 per cent levy.
At the same time, frozen thresholds and rising property prices are dragging more estates into the tax net. The OBR expects more than 16,000 estates to be worth over £2million by 2030/31, further swelling the tax take.
With thresholds remaining unchanged while asset values climb, inheritance tax is increasingly affecting middle-income households rather than just the very wealthy pushing up revenues and leaving more families facing unexpected bills.
Emma Walker, director at retirement specialist Just Group, said: “The OBR forecasts shine a light on how lucrative inheritance tax is becoming for the Treasury, uprating its projected tax take by £0.7billion over the next five years to £70.6billion.”
Annual receipts are forecast to climb from £8.7billion this year to £14.7billion by 2030/31.
The revised figures show increases of £100million for 2027/28 and £200million annually for each subsequent year through to 2030/31.
HMRC set to rake in an extra £700million in inheritance tax as thousands to lose key allowance
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Ms Walker highlighted that frozen thresholds combined with escalating asset values have been swelling the inheritance tax take for some time.
“The recent changes to the regime announced in the 2024 Autumn Budget bringing pensions into the scope of IHT will likely accelerate this trend,” she said.
The retirement specialist added: “With more and more estates now forecast to incur Inheritance Tax by the end of the decade, it is clear that the tax is no longer restricted to the very wealthy and is beginning to take a bigger bite out of middle Britain’s wealth.”
Families now face a double blow from rising house prices and the pension changes taking effect next year.
Some gifts and property are exempt from Inheritance Tax, such as some wedding gifts and charitable donations | GETTY
A little-known tax trap strips estates of their residence nil rate band once they exceed £2million in value.
This additional £175,000 allowance disappears at a rate of £1 for every £2 above the threshold, vanishing entirely at £2.35million for individuals or £2.7million for couples.
Wealth manager Quilter estimates 5,613 estates will surpass £2million by 2027-28, rising to 16,000 by 2030-31.
HMRC data shows just 3,620 estates liable for IHT exceeded this level in 2022-23. Sean McCann from NFU Mutual illustrated the impact: a single person with a £2 million estate plus £500,000 pension currently faces a £600,000 bill, jumping to £870,000 from April 2027.
Ms Walker urged people to obtain current valuations of their estates, including property assessments, to understand their likely IHT exposure
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Mr McCann warned that folding pensions into the inheritance tax net could strip families of their tax-free allowance on the family home, creating “a triple blow to many” when combined with potential income tax charges on beneficiaries.
Ms Walker urged people to obtain current valuations of their estates, including property assessments, to understand their likely IHT exposure.
“Estate planning is complex and professional financial advice can be immensely helpful for people who want to manage their estate efficiently and pass on the maximum inheritance to loved ones,” she said.
Alex Pugh from wealth manager Saltus cautioned that repeated changes to pension rules risk undermining confidence in long-term saving.