Inheritance Tax (IHT) bills now top £500,000 for nearly one in 10 estates, according to figures from wealth manager Rathbones.
In the 2021/22 tax year, 1,630 estates paid between £500,000 and £999,999 in IHT, and a further 890 paid over £1m.
That added up to over 2,500 estates, or 9% of all liable estates, a 29% rise on 2018/19 numbers.
If this trend carries on, over 3,500 estates could pay more than half a million pounds in IHT by the end of 2025/26.
Rebecca Williams, divisional lead of financial planning at Rathbones, said: “More and more people will be caught out by IHT charges, despite the availability of gifting allowances and the seven-year rule.
“The deep freeze on both the main nil-rate band and the residence nil-rate band, unchanged since 2009 and 2017 respectively, has led to a creeping form of fiscal drag.
“As house prices and asset values have steadily risen, more estates are being brought into the IHT net simply because the thresholds haven’t kept pace with inflation.”
Williams added: “This issue is set to worsen from April 2027, when pension assets are brought into the fold and change could pull even modest estates into scope for IHT, making it increasingly vital for families to engage in effective financial planning.
“Without proactive steps, more estates will find themselves facing IHT bills they might not have anticipated.”
Pension assets are set to be included in inheritance tax from April 2027, which Rathbones said will likely push more estates into higher tax brackets and affect people preparing for retirement or passing on wealth.
In 2021/22, 39% of estates paid between £100,000 and £499,999 in IHT.
Within that, 7,270 estates paid between £100,000 and £249,999, and 3,540 paid between £250,000 and £499,999.
The majority (52%) paid up to £100,000.
Over the three years to 2021/22, there was a 26% rise in the number of estates paying IHT.
Research by Rathbones found that nearly a third of people with pensions (31%) said they were put off making further contributions because of the planned inheritance tax changes.
Two out of five (39%) said they would put the money in savings accounts, while 25% planned to invest in equity ISAs.
Nearly one in seven (14%) said they had turned to property investment as a result.
Williams said: “Parents and grandparents are increasingly aware of the IHT bill they might be leaving behind and many are looking for ways to support family and loved ones during their lifetimes instead.
“Conversations with clients show a real desire to help younger generations now – particularly with education and getting onto the property ladder – while safeguarding their own long term financial security, and these changes add an extra layer of complexity to wrestle with.
“The Bank of Mum and Dad is under pressure, clients are walking a line between supporting children today, having enough for later life care tomorrow and not wanting to give the Treasury too much of their hard-earned wealth on death.”
