Inheritance Tax in the future
The most significant policy affecting IHT trends is the ongoing freeze of the exemption thresholds. These have remained unchanged since 2009 and were extended again in October 2024. As house prices continue to rise and given that property is typically the largest asset in an estate, more families will find their estates subject to Inheritance Tax.
Non-Domiciled Individuals
The UK government had announced significant changes to Inheritance Tax rules for non-domiciled (non-doms) individuals, which took effect from April 6, 2025. Before this date, non-doms were liable for IHT on UK assets unless they had a been UK residents for 15 of the last 20 years. The new rules however impose IHT based on UK residency, regardless of domicile status.
Non-doms who have been UK residents for 10 of the last 20 years are now be classified as long-term residents and liable for IHT on worldwide assets. Additionally, a ‘tail’ period was introduced, where long-term residents remain liable for IHT on these assets for three to 10 years after leaving the UK, depending on their residency duration.
It’s difficult to predict the exact impact at this stage as HMRC doesn’t provide data on the duration of non-dom status. It is also claimed that many high-net-worth individuals left the UK before April, while others looked to mitigate the impact through estate planning.
Agricultural Property Relief (APR)
One of the most contentious announcements made by the UK government is the reform of APR, effective from April 6, 2026. Under the new rules, the full 100% relief will be limited to the first £1 million of combined agricultural and business property. For values exceeding this threshold, the relief will be reduced to 50%. This change aims to better target the relief and prevent the largest estates from benefiting disproportionately.
While the intention is to protect small family farms from high Inheritance Tax burdens, there are concerns that larger agricultural operations may face additional financial strain. This could impact their viability and succession planning, leading to significant debate within the farming community. The reform is seen by some as a necessary step to ensure fairness, while others worry about the potential negative effects on the agricultural sector.
Although disputed, the Office of Budget Responsibility estimate that there will be 130 estates affected by changes to APR in 2026/27.
The relief will be reduced to
Business Property Relief (BPR)
The UK government also announced significant changes to BPR. Also effective from April 6, 2026, these changes are designed to better target the relief and ensure it benefits smaller businesses more effectively. Under the new rules, the full 100% relief will be limited to the first £1 million of combined business and agricultural property. For values exceeding this threshold, the relief will be reduced to 50%.
Additionally, AIM-listed shares, which previously qualified for 100% BPR, will only qualify for 50% relief, regardless of their value. This reduction applies independently of the new £1 million allowance. The £1 million allowance covers property within an estate at death, lifetime transfers made within seven years of death (failed PETs), and lifetime transfers to trusts that trigger an immediate charge. For trusts, each will have a £1 million allowance for assets qualifying for 100% relief on each tenth-anniversary charge or exit charge.
The Office of Budget Responsibility estimate that there will be 1440 estates affected by changes to BPR in 2026/27. In total it expects the change to generate £200m in the 2026/27 tax year.
Pension changes
In the October 2024 Budget, significant changes to pensions and IHT were proposed. Starting from April 2027, pensions are due to be included, meaning unspent pension funds will form part of an individual’s estate and be subject to IHT at a rate of 40%. This change is expected to impact thousands of families, potentially increasing their tax liabilities. Previously, pensions were generally exempt, providing a tax-efficient way to pass on wealth to loved ones.
It has been speculated that this change could add 10,000 additional IHT estates by 2027/18. Although significant, these changes fall outside the period for forecasting within this report.
additional IHT estates by 2027/28
Forecasting the future
For the purposes of this report, a simple predictive model to forecast possible outcomes for the number of IHT-liable estates and the total amount of Inheritance Tax generated in2026/27 was used.
It examined previously unpublished data secured via our FoI requests and looked at emerging trends, new policies, and analysed how these could play out if they continued until 2026/27.
We're confident the findings point to the direction of IHT in the future. There are so many moving parts and therefore this should be viewed as an illustration, and it shouldn’t be relied upon. Further details are below and in the methodology section.
The UK population is projected to grow from
million in mid-2022 to
million in 2027 and
million by mid-2032
Analysis of Inheritance Tax liabilities by postcode
This section examines the increase in the number of estates liable for Inheritance Tax and the total amount due within specific postcodes.
Predicted Inheritance Tax liabilities for 2027
The table below provides an overview of the predicted number of estates and Inheritance Tax liabilities for the year 2026/27 in various major cities across the UK.
Inner London stands out with the highest predicted number of estates and Inheritance Tax liability, reflecting its large population and high property values. The average tax bill per estate in Inner London is notably higher than in other locations, indicating significant wealth concentration. Out of the large cities excluding London, Manchester is predicted to have the second highest average IHT bill at £282,051 per estate – approximately £40,000 more than the predicted national average of £239,000.
Birmingham, the UK's second largest city, shows substantial predicted increases in both estates and tax liability, with the average tax bill per estate being relatively high, suggesting significant property worth. On the other hand, Glasgow's predicted Inheritance Tax liability is lower than Birmingham's, which can be attributed to lower property values. However, the predicted average tax bill per estate in Glasgow remains substantial, reflecting the city's economic position.
Liverpool demonstrates a notable increase in predicted IHT liability, with an average tax bill per estate surpassing that of some larger cities. Similarly, Bristol, with its strong economic position and high property values, has a high number of predicted estates and tax liability. The average Inheritance Tax bill per estate in Bristol is substantial, further underscoring the city's affluence.
Edinburgh's high predicted estates and tax liability reflect its status as the capital of Scotland, with high property values contributing to a prominent asset value per estate. Leeds, unlike Manchester, is forecasted to have a much lower average IHT tax bill per estate, being the only city in this group to score below £200k. Sheffield, while showing substantial increases, has a slightly lower average tax bill per estate compared to other major cities, reflecting more moderate property value.
Predicted number of estates and total Inheritance Tax Liability for 2027 by region
The following analysis explores the predictions for the average Inheritance Tax bill per estate in each region.
Greater London continues to dominate the estate values landscape, reflecting its substantial wealth concentration and high property values. The average IHT bill per estate in Greater London is notably higher than other regions and is closely followed by the South East region. In addition to its proximity to London, this region attracts affluent residents and businesses, contributing to high estate values.
Estate values across UK regions vary significantly, shaped by a mix of property types, economic activity, and reliefs. The South West and East of England stand out with high average tax bills, driven by desirable living conditions and agricultural or business property relief. Similar dynamics are seen in the Midlands, Yorkshire and the Humber, and the North West, where urban-rural mixes and economic diversity contribute to substantial estate values.
Regional Disparities in Estates Liable for Inheritance Tax
The comparison of estates liable for Inheritance Tax between 2022 and 2027 reveals significant regional disparities across the UK. Inner London stands out with the most dramatic increase, where the percentage rises from 14% in 2022 to 25% in 2027.
The substantial rise underscores the need for targeted estate planning strategies to mitigate the impact of Inheritance Tax on beneficiaries in Inner London. Greater London also experiences a notable increase, with the percentage of estates liable for Inheritance Tax rising from 10% in 2022 to 16% in 2027.
In the South East and South West, the percentage of estates liable for Inheritance Tax is predicted to increase from 6% to 8% and 5% to 7%, respectively. These disparities, compared to regions like the North East where the percentage remains stable at 1%, highlight the varying economic conditions and property market dynamics across the UK.
The West Midlands and East of England also see significant increases, with the percentage of estates liable for Inheritance Tax rising from 2% to 6% and 4% to 6%, respectively. Meanwhile, the North West and Yorkshire and Humber regions show smaller predicted increases, from 2% to 3%.
Summary
The overall trends indicate significant increases in both the number of estates and Inheritance Tax liabilities across major UK cities by 2027. Inner London stands out with the highest figures, demonstrating substantial wealth concentration and high property values. Other cities like Birmingham, Manchester, and Edinburgh also show considerable increases. The analysis highlights the growing financial impact on taxpayers, particularly in urban areas with significant estate values and economic activities. Changes in agricultural and business property relief further influence the financial landscape, especially in regions with high property values.