Landlords and property owners outside the South East are increasingly being caught by inheritance tax as rising house prices erode the frozen nil-rate bands, wealth managers have warned.
While overall IHT receipts have shown modest monthly increases, experts say the real story lies beneath the headline figures: families in the South West, Midlands and North of England are being dragged into the tax net by property price growth, often without realising it.
Regional house price growth shifts IHT burden
Property values in London and the South East have levelled off in recent years, with some areas falling in real terms compared to inflation. Meanwhile, other parts of the country have seen double-digit annual increases.
Ian Dyall, head of estate planning at Evelyn Partners, said: “Property values in and around London have levelled off in recent years, and even fallen in real terms in some areas compared to general inflation, while elsewhere in the country house prices had seen double-digit annual increases.
“That could mean many families in the South West, Midlands and North of England are being dragged into the potential IHT net by the increase in their home’s value, probably without realising it.”
The nil-rate band has been frozen at £325,000 since 2009, while the residence nil-rate band stands at £175,000. For landlords with buy-to-let portfolios alongside their main residence, even modest property holdings can now breach these thresholds.
Pension changes add to estate planning urgency
The pressure is set to intensify from April 2027, when pension pots will be brought within the scope of IHT for the first time. For landlords who have built up pension savings alongside their property portfolios, this could significantly increase their estate’s taxable value.
Dyall advises that families anywhere in the country whose property wealth looks likely to use up their nil-rate bands should be considering some form of estate planning, particularly given the pension changes ahead.
Isaac Stell, investment manager at Wealth Club, said: “The government has made a pig’s ear of inheritance tax reform. Crackdowns on farmers and business owners proved unpopular and ultimately unworkable, forcing a partial retreat on relief thresholds.
“But years of frozen allowances, combined with new rules that will bring pensions into the scope of IHT, mean more ordinary families, not just the wealthy, are being pulled into the tax net.”
For landlords planning to pass property portfolios to the next generation, the combination of frozen thresholds, rising property values and the upcoming pension changes creates a strong case for reviewing estate planning arrangements now. Professional advice on trusts, lifetime gifts and potentially exempt transfers may help reduce the eventual IHT bill.
Opinion
Inheritance tax was once a concern only for the wealthy, but fiscal drag has changed that. Landlords who built portfolios over decades now face handing a significant slice to HMRC. The frozen thresholds are a stealth tax on property wealth, and the pension changes from 2027 will catch even more families off guard. Estate planning is no longer optional for serious landlords.
