Hidden Risks That Could Increase Your IHT Bill
- Sian Hinton-Woodier DipPFS
- 2 days ago
- 3 min read
If you own a property in Marlow, there’s an increasing chance that your estate could be exposed to inheritance tax (IHT) in the not-too-distant future. With high local property values and recent legislative changes, the total value of your estate may be significantly higher than you realise.
Two factors are now especially important. The first is the £2 million threshold, where valuable tax allowances begin to reduce. The second is the upcoming inclusion of pensions within inheritance tax calculations from April 2027.
On their own, each of these is relatively straightforward. But when combined, they can significantly increase the amount of tax payable— without families even realising.
The Threshold That Changes Everything
Most people are familiar with the basic IHT allowances. There is a £325,000 nil-rate band, and an additional £175,000 residence nil-rate band if you pass your home to direct descendants. For couples, these can typically be combined, allowing up to £1 million to be passed on tax-free.
However, there is a catch.
Once your estate exceeds £2 million, the residence nil-rate band starts to disappear until it is lost entirely. A relatively modest increase in your estate can therefore lead to a significant increase in inheritance tax.
The Real Issue: Crossing the £2 Million Line
In an area like Marlow, where property values are particularly strong, the impact of inheritance tax becomes even more pronounced.
For many families, their home represents a significant proportion of their overall wealth. Over time, continued rises in house prices mean that estates which have sat below the £2 million threshold are now at risk of breaching it—and, in doing so, losing part or all of the residence nil-rate band.
When this is combined with the inclusion of pensions in estate values from 2027, the position can become even more challenging. Pensions, once viewed as one of the most efficient ways to pass on wealth to loved ones, could now become one of the more heavily taxed assets on death.
What Can Be Done?
While these changes may sound concerning, the key point is that there are still options available—particularly when planning is approached early.
The first step is understanding the full picture. This means looking at your estate as a whole, including your property, pensions, and other assets. For many people, it is only when everything is considered together that the potential exposure becomes clear.
From there, it may be worth reviewing how different assets are likely to be used. Traditionally, pensions have often been preserved for inheritance purposes, but with the rules changing, this approach may no longer be the most efficient. In some cases, considering how and when assets are drawn—can help manage overall tax exposure.
Consideration can also be given to reducing the value of an estate over time. This is often approached through a combination of lifetime gifting, the use of appropriate planning structures, and arrangements to help meet potential liabilities. Each has different implications and should be considered as part of a wider, long-term plan.
Perhaps most importantly, regular review is key. Property values, pension funds, and tax rules all change over time. What may not be an issue today could become relevant in the future—particularly in areas like Marlow where asset values tend to grow steadily.
If anything in this article has got you thinking, or you’d like to have a quick conversation about your own situation, feel free to drop me an email – sianhw@amberrriverpremier.com
Please note, this article is for information only and does not constitute advice.
