The upcoming inheritance tax overhaul, as hinted by Chancellor Rachel Reeves' recent statements, could disproportionately affect ordinary homeowners, according to a leading property expert. The speculation surrounding potential changes in inheritance tax (IHT) is causing concern among families who fear being caught in a system once reserved for the very wealthy. The government's focus on 'unearned wealth' to address a £50 billion gap in public finances has raised red flags. The current IHT rate of 40% on estates over £325,000, with an additional allowance for a main residence passed to direct descendants, has been frozen since 2009. However, soaring property prices have pushed more people into the tax net. If the limit had kept pace with inflation, it would now exceed £523,000. Last year, grieving families paid a record £8.2 billion in inheritance tax, and forecasts predict this figure could reach £14 billion by the end of the decade. Despite this, a YouGov poll revealed that 54% of respondents support abolishing IHT entirely, indicating growing frustration. Wealth managers report an increase in clients transferring assets early to avoid potential rule changes, while equity release advisers note a 10% annual rise in withdrawals in the second quarter of 2025, with an average amount released of £126,422. The perception that IHT only affects the wealthiest is challenged by David Alexander, CEO of Scotland's largest estate and letting agency. He argues that the tax increasingly impacts ordinary homeowners who have seen their property values rise over the last three decades. Alexander refutes the notion that a person with assets over £325,000 is wealthy, emphasizing that the tax disproportionately affects those who have benefited from rising house prices. He warns that any tightening of rules could lead to unintended consequences, as homeowners may adjust their behavior to reduce the tax impact. Alexander advocates for reducing the IHT rate and removing exemptions to benefit the Treasury. He emphasizes that these tax changes target ordinary British people who are working hard, building pensions, and paying off mortgages. He believes that penalizing this group for saving and achieving the system's goals is unjust.
