IHT thresholds would be £270,000 higher by the next tax year if they had risen in line with inflation, according to new analysis.
The £325,000 nil rate band for IHT would be set at £537,000 by the 27/28 tax year if it had been indexed by inflation.
the £175,000 resident nil rate band would be £233,000, meaning if both had been indexed in line with inflation it would take them to a combined £770,000 before IHT would kick in.
Instead, both have been frozen, the nil rate band since April 2009 and the resident nil rate band since April 2020.
The rates will remain at current levels until April 2030 with the result that total IHT nil rate bands for an individual will remain at a total of £500,000 where a family home is left to direct descendants.
The analysis comes from Chesnara Life (UK) which warns the inclusion of unused pension funds in estates from April 2027 will add to the pressure on Financial Planners and clients to plan carefully for IHT.
The firm said Government data shows the percentage of estates likely to be subject to IHT will rise to 7% by 2032/33, nearly double the 4% which paid the tax in 2020/21.
The inclusion of unused defined contribution pensions in estates from 2027/28 is estimated to raise an additional £5.46bn in IHT by 2030/31. Around 10,500 estates will have an IHT liability in 2027/28 which they would not previously have had and a further 38,500 will pay more IHT as a result.
Mark Lambert, head of onshore bond distribution, Chesnara Life, said: “The freeze on IHT nil rate and resident nil rate bands has had a significant impact on estate planning and means ever increasing numbers of advisers and their clients will need to plan for IHT.”
Chesnara Life (UK) Ltd, formerly HSBC Life (UK) Limited, is a UK subsidiary of Chesnara plc.