Rising house prices are likely to make inheritance tax (IHT) a more pressing issue for ordinary families within the next decade, new research has suggested.
Data by investment platform Wealthify shows that the average parent in the UK hopes to leave an inheritance of £311,904 to their children—a figure that edges ever closer to the current £325,000 IHT threshold.
IHT is paid on the estate – the possessions, money, and home – of someone who has died. It is applied at a flat rate of 40 per cent on estates worth over £325,000.
While homes left to children or grandchildren currently benefit from an additional £175,000 residence nil-rate band, bringing the total tax-free threshold to £500,000, escalating house prices could still leave some estates exposed.
Wealthify’s analysis of Land Registry data dating back to 1990 indicates that the average UK house price – currently £268,548 – could exceed £325,000 by September 2035.
Their forecast places the average home value at £325,461 by then. For properties passed to non-direct descendants or for second homes, the threshold remains frozen at £325,000 until 2029 to 2030, after which any value above this figure is taxed at 40 per cent.
The findings raise concerns that IHT, often seen as a problem for the wealthy, could become a far more common issue.
In fact, while just over 4 per cent of estates currently pay IHT, the number is set to rise to over 7 per cent by 2032-33, according to Wealthify’s predictions.
Simon Holland, chief operating officer at Wealthify, said: “Seeing adult children benefit from financial gifts while you’re still alive could be very rewarding, especially as the cost of living and buying properties in the UK continues to grow.
“Our research shows that four in five parents are becoming increasingly concerned with the amount of inheritance tax bereaved families are paying, driving a growing trend in people looking at how to pass on money to their loved ones in a tax-efficient way.”
The report found that 84 per cent of parents planning to leave a monetary inheritance say their property will make up the majority of what they pass on.
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Meanwhile, 38 per cent of those surveyed said they were considering gifting inheritance early to help their children buy or improve a property – a trend that may become increasingly common as prices climb.
Mr Holland added: “If you are relatively young, healthy, and are financially able to do so, you might want to consider leaving your children a chunk of inheritance while you’re still here.“It’s possible this will enable you to reduce a future inheritance tax bill if your estate is likely to exceed the nil-rate band.
“Still, as the law stands, if you die within seven years of the gift, it could still be subject to inheritance tax (if your estate is over the current £325,000 threshold). If you’re unsure about gifting, please seek financial advice.”
A recent freedom of information (FOI) request to HMRC, sent by Wealthify, revealed a 48 per cent increase in families choosing to distribute their wealth during their lifetimes over the past decade, likely in a bid to sidestep rising IHT costs.
‘IHT changes could force the sale of our land’
Moor Farm, in Northumberland, which is run by Richard Watts and his wife (Photo: Feather Down/Tom & Lizzie Redman Photography)For those in agriculture and rural communities, the implications of unchanged inheritance rules are even more pronounced.
In the last Budget, the Government announced that, starting in April 2026, the availability of 100 per cent relief for agricultural and business property would be capped.
Under the new rules, the relief will be restricted to the first £1m of combined agricultural and business property, after which a 50 per cent relief from IHT will apply to a deceased individual’s estate.
Many farmers have protested against the changes.
Speaking to The i Paper, Richard Watts, who runs Moor Farm in Northumberland with his wife Wendy, expressed concern about the future of their land.
He said: “Last year’s Budget and the spring statement have failed to address the urgent challenges facing farmers.
“While the Government acknowledges global insecurity, it continues to overlook food security as a key part of national resilience.
“Rising costs in wages, national insurance, and energy are putting immense pressure on small and family-run farms, while inheritance tax changes could force the sale of land, threatening long-term sustainability.
“More support from the Government is necessary for the industry to grow. The Government must prioritise targeted support, reform outdated tax policies, and commit to the NFU’s call for a dedicated agricultural budget to safeguard the future of British farming.”
HMRC has been contacted for comment.
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