Nobody sets out to become a millionaire by accident. But across the UK, a growing number of households are waking up to the fact that their estate now sits above the inheritance tax threshold, not because they struck it rich, but because the goalposts haven’t moved in over 17 years.
The IHT nil-rate band has been frozen at £325,000 since April 2009. Back then, the average London house cost around £250,000. Today, the average London property sits at roughly £540,000 according to the ONS, and a semi-detached in the South East will set you back closer to £470,000.
Add a workplace pension, some savings and a life insurance policy, and a perfectly ordinary family can find itself well into seven-figure territory. The OBR now forecasts that annual IHT receipts will hit £14.5 billion by 2030-31, up from £8.5 billion collected in 2025-26. That’s a lot of extra tax coming from somewhere, and most of it will come from people who never considered themselves wealthy. We’ll look at how the frozen thresholds, rising property prices and the 2027 pension rule change are combining to create a perfect storm for ordinary estates.
A Threshold That Hasn’t Kept Up
If the nil-rate band had risen with CPI inflation since 2009, it would sit at roughly £470,000 today. Instead, it’s stayed put while property prices across much of England have nearly doubled.
The result is pure fiscal drag. Estates that would have cleared the threshold comfortably a decade ago are now firmly caught in the IHT net. For a married couple who own their home and leave it to their children, the combined allowance (including the residence nil-rate band) maxes out at £1 million. That sounds generous until you price a detached house in Surrey, Hertfordshire or Cambridgeshire, add two pension pots and an ISA each, and realise you’ve blown straight past it.
The numbers tell the story. HMRC data shows IHT receipts have hit record levels year after year, with £8.5 billion collected across the full 2025-26 financial year, a fifth consecutive annual record. The OBR estimates that around one in ten estates will be liable for the tax by 2030-31. A decade ago, IHT was a worry for the genuinely wealthy. Now it’s a conversation happening at kitchen tables across the Home Counties.
Pensions Are About to Make It Worse
From 6 April 2027, most unused pension funds and death benefits will be included in the value of a person’s estate for IHT purposes. This is a big deal.
Until now, pensions have sat outside the estate. That made them one of the most tax-efficient ways to pass wealth between generations, and it shaped how many people planned their retirement spending. The logic was simple: draw down ISAs and savings first, leave the pension untouched for as long as possible, and let it pass to your family free of IHT.
That strategy is about to break. The government estimates that in 2027-28, around 10,500 additional estates will become liable for IHT purely because of this change, with a further 38,500 estates paying more than they would have before. Anyone with a decent defined contribution pension, say £200,000 or more sitting in drawdown, needs to rethink how their estate stacks up.
What These ‘Accidental Millionaires’ Should Do About It
The worst response is to do nothing and assume someone else will sort it out. IHT bills land on the estate after death, and by that point, options are limited.
The first step is to get a clear picture of where things stand. That means tallying up the property, pensions, investments, life insurance and business interests, then working out the likely IHT exposure. Most people are surprised by the total.
From there, it becomes a question of pulling the right levers at the right time.
- Gifting can reduce an estate, but the seven-year rule means you’ll need to start early.
- Pension drawdown strategies will need revisiting before April 2027.
- Trust structures may help in some cases but come with their own costs and complexity.
- And for business owners, succession planning and the use of remaining reliefs are time-sensitive.
The common thread is that none of these decisions exist in isolation. A gifting strategy that ignores your retirement income needs could leave you short. A pension drawdown change that doesn’t account for your wider tax position could create new problems. Bringing retirement, tax, estate and investment planning together through proper financial planning management is the best way to avoid solving one problem while accidentally creating another.
The Freeze Won’t Thaw Any Time Soon
The nil-rate band won’t be unfrozen before April 2031 at the earliest. The residence nil-rate band is locked too. With the pension changes coming in April 2027 and IHT receipts on track to nearly double within the decade, the direction of travel is clear. The Treasury needs the revenue, and frozen thresholds are a politically convenient way to collect it.
For the households caught in the middle, that means IHT is no longer someone else’s problem. It’s a tax that now reaches deep into Middle England, into family homes bought decades ago, into workplace pensions that were meant for retirement, and into modest business interests that were never built to be sold. The people paying it won’t feel like millionaires. But HMRC won’t care about that.
