Inheritance tax could be due on the average property in just 10 years

The average person could be paying inheritance tax (IHT) on their parents’ estate by 2035 as house prices continue to rise, according to new research from investment firm Wealthify.

Parents of adult children across the UK who plan on leaving a monetary inheritance were surveyed to understand attitudes around gifting inheritance early.

The research found the majority (84%) of parents say their property will make up the bulk of what they leave to their children.

On average, parents hope to leave an inheritance of £311,904 for their children, according to the research.

However, based on analysis of house prices from the government’s Land Registry dating back to 1990, Wealthify predicts the average house price could hit over £325,000 by September 2035 (£325,461).

In many areas in the UK, homes will already be in excess of this threshold.

How can you increase the inheritance tax threshold?

There is an additional main residence IHT relief worth £175,000 per homeowner. So if two parents own the main family home they can pass an extra £350,000 in property wealth onto their direct descents, ie. children.

However there will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

Likewise spouses inherit any unused IHT allowances, so in total children could inherit up to £1 million from their parents – £325,000 from each parent, plus £175,000 additional property relief from each parent.

However while the latest figures show IHT is paid by just over 4% of estate beneficiaries the rapid growth in wealth means this number is set to rise to over 7% by 2032-33, according to Wealthify’s analysis.

As of January 2025, the average house price in the UK is £268,548, so anyone inheriting a property of this price won’t have to pay inheritance tax.

Comparatively, 10 years ago in 2015, the average UK house price was just £176,439. That marks a 62% increase to today’s average, and a 84% increase to the 2035 forecasts.

Inheritance tax can cost loved ones tens of thousands of pounds when they inherit money, with the tax forecasted to generate around £8.3 billion for the government in the 2024-2025 tax year alone.

The current inheritance tax threshold is frozen at £325,000 until the 2029-30 tax year. Anything inherited above £325,000 is normally charged at a 40% tax rate. This is reduced to 36% if 10% or more of the net value of the estate above the threshold is left to charity.

Should you give away your inheritance before you die?

Wealthify’s research also found that the second-most popular reason parents are considering gifting inheritance early – as well as to avoid inheritance tax – is to help their child buy or improve property (38%), perhaps indicative of the ever-growing property prices in Britain.

Simon Holland, chief operating officer at Wealthify says: “Seeing adult children benefit from financial gifts while you’re still alive could be very rewarding, especially as the cost of living and buying properties in the UK continues to grow.

“If you are relatively young, healthy, and are financially able to do so, you might want to consider leaving your children a chunk of inheritance while you’re still here.

“It’s possible this will enable you to reduce a future inheritance tax bill if your estate is likely to exceed the nil-rate band.

“Still, as the law stands, if you die within seven years of the gift, it could still be subject to inheritance tax (if your estate is over the current £325,000 threshold).

“If you’re unsure about gifting, please seek financial advice.”