The £325,000 nil-rate band for inheritance tax has been frozen since 2009. The £175,000 residence nil-rate band, introduced by the Finance Act 2017, was scheduled for review in 2021, then frozen by the Finance Act 2021, then extended by the Finance Act 2024, and most recently extended by the Spring Statement 2026 to April 2031. By the time the freeze ends — assuming it does end on schedule, which on the historical record is not guaranteed — the principal band will have been static for twenty-two years. Cumulative inflation across that period will have eroded its real value by approximately half.
Why the freeze is so consequential
Frozen tax thresholds operate as fiscal drag. An asset class that rises with inflation, against a threshold that does not, brings a continually expanding number of households into the tax base without any explicit policy decision to enlarge it. Property prices, the dominant component of UK estates, have risen by approximately 70% in nominal terms since 2009. Pension pots, the asset class that joins the calculation from April 2027, have grown faster still. The nil-rate band has not moved.
The number of estates paying inheritance tax has risen accordingly. In 2009, fewer than 3% of UK estates paid any IHT. The 2024 figure was approximately 5.4%. The Office for Budget Responsibility's projection for 2030, factoring the pension inclusion, sits between 9% and 11%. Almost the entirety of that increase is fiscal drag; almost none of it is a deliberate broadening of the tax.
The compounding with pensions
What separates the current freeze from its predecessors is its overlap with the inclusion of unused pension funds in the IHT calculation from April 2027. The pension reform was scored as a £2.5 billion annual revenue measure in its first full year, rising to approximately £3.4 billion at steady state. The threshold freeze, scored separately, raises additional revenue across the same period. The two measures are not formally connected in the Treasury's documentation. In practice, they reinforce one another mechanically: pensions push more estates over the band, and the frozen band collects more tax from each estate pushed over it.
The combined effect is the largest single expansion of the UK inheritance tax base in any four-year period since the introduction of the tax in its modern form. It is also, on the OBR's distributional analysis, the most regressive — falling disproportionately on middle-income households whose pension wealth is their dominant financial asset, rather than on the very wealthy, whose IHT exposure is typically managed through structures that the new rules do not affect.
What this means for planning
Two implications. First, the planning question that previously sat below the threshold for most households — should we be thinking about IHT exposure — is now active for a substantially larger cohort, and will be active for more each year the freeze continues. Second, the conventional wisdom that 'we are nowhere near the threshold' is increasingly mistaken; the threshold is moving toward the household in real terms, even when the household's nominal assets are static.
The practical response, for households in the middle band of exposure, has not changed. Run the calculation under the current rules, including the post-2027 position. Understand whether the figure is genuinely material. If it is, the standard mitigations — lifetime gifting, surplus-income gifts, charitable legacy structuring, life assurance written in trust — remain available and remain useful. The only thing the freezes have changed is the cohort of households for whom the conversation is now relevant.