Increasing the inheritance tax threshold will pull 12,500 families out of IHT annually

by | Nov 13, 2023

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At £6bn it is a less costly reform for government than reducing the headline IHT rate, while simplifying the tax

New analysis from Quilter, the wealth manager and financial adviser, has found that if the government were to raise the inheritance tax threshold to £500,000 and remove the Residence Nil Rate Band (RNRB) at the Autumn Statement it would cost the Treasury £6bn from 2024/25 to 2027/28.

Quilter’s calculations show this reform would cost the Treasury on average £1.4 billion per year and prevent around 12,500 families paying inheritance tax each year. In the 2020/21 tax year, 27,000 estates paid IHT.


Further calculations show that if the Treasury chose instead to reduce the rate of inheritance tax from 40% to 30%, it would cost the government £7.7bn from 2024/25 to 2027/28. The same number of estates would pay IHT, but their bills would be reduced.

Similarly, if the rate of inheritance tax was dropped to 20% it would cost the government £15.4bn from 2024/25 to 2027/28. There are rumours published yesterday that £15 billion of fiscal headroom might be used to help pay for a reduction in the headline rate of inheritance tax.

Ahead of the Autumn Statement there have been a variety of rumours that the government may look to tweak the inheritance tax rules by potentially lowering the headline rate of inheritance tax currently set at 40% or by increasing NRB.


The Nil Rate Band (NRB) has been set at £325,000 since 2009, with the RNRB in place since 2017. At present any estate valued lower than £325,000 has no inheritance tax due. However, the RNRB offers an extra allowance of up to £175,000 if you pass your home to your children or grandchildren. This means that together a married couple or one in a civil partnership has an inheritance tax allowance of £1m. 

However, the RNRB has been criticised for its complexity and restrictiveness as its application depends on a variety of factors. It is also sometimes unable to be applied to more modern family dynamics as it can only be used to pass on a home to direct descendants so a single person with no children could not use it to pass on their home to other relatives of friends.

Shaun Moore, tax and financial planning expert at Quilter:


“Making moves to modernise inheritance tax could be a real rabbit out of the hat moment for Jeremy Hunt at the Autumn Statement. Despite IHT being paid by only 4% of the nation it is a tax that many people find egregious. Therefore, any changes could help garner the Conservatives some much needed popularity ahead of next year’s general election.

“What is clear is that not all changes to the current IHT system are made equally. By increasing the NRB and scrapping the RNRB it serves to remove complexity from an area of taxation desperately in need of simplification while not costing the government a huge amount over the long term. They essentially can look generous while not actually giving that much away.

“Reducing the headline rate of tax would help reduce bills which would no doubt be popular, but it could be costly for the government and people will still get landed with a IHT bill.


“If any changes are announced any benefit could be short-lived as if Labour does form the next government it has already stated that it would reduce some of the IHT reliefs available such as Business Property Relief and Agricultural Property Relief.”

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