A “double whammy” of changes to inheritance tax (IHT) rules could leave even low and middle earners with significant tax bills by retirement, with new estimates showing liabilities as high as £267,000 for average homeowners and savers.
Interactive investor has calculated that a 45-year-old earning £20,000 today could face an IHT bill of £170,069 by age 68, based on projected property and pension values. The projected liability rises to £194,529 for someone earning £35,000, the national average salary, and up to £267,914 for those earning £80,000.
The forecast reflects the combined impact of two key policies: the planned inclusion of pensions in IHT calculations from 6th April 2027, and the ongoing freeze in the main nil-rate band at £325,000 and the residence nil-rate band at £175,000. These thresholds have not increased since 2009 and 2020 respectively, while asset values have continued to rise.
The figures are based on assumed 2% annual increases in property prices and salaries, with pension contributions set at the 8% minimum for automatic enrolment. The underlying assumptions were informed by Land Registry and ONS data, with the average home currently valued at £268,319 and average pension pots for 45-year-olds standing at £80,000.
A Freedom of Information request by interactive investor to the Office for Budget Responsibility revealed that nearly 153,000 estates could be newly or more heavily affected by 2030 due to the policy changes. This includes 31,200 estates that will become liable for IHT for the first time.
Myron Jobson, senior personal finance analyst at interactive investor, said: “The double whammy of plans to include pensions in IHT calculations, alongside the ongoing freeze in nil-rate bands, means that IHT is increasingly becoming a tax for all, not just the wealthy as it was originally portrayed. The stark reality is that the IHT net is expanding, increasingly ensnaring people with modest assets.”
He added: “The evolving IHT regime continues to be a major revenue stream for the Government, with IHT receipts reaching record highs between April 2024 and March 2025, and likely to keep rising. Understanding the key changes to the IHT regime is vital for anyone looking to pass on wealth efficiently.”
A recent interactive investor survey found that 54% of UK adults plan to revise their retirement or estate planning in response to the pension-related IHT changes.
Jobson cautioned that individuals must not lose sight of their own retirement needs. “Whether this means gifting more to loved ones or exploring other strategies, it’s crucial not to overlook your own financial needs in later life. You don’t want to find yourself financially stretched in retirement,” he said.
