The silent tax rise: How frozen Nil Rate Bands and surging London property values have created a hidden inheritance tax burden

Inheritance tax (IHT) is often described as a voluntary tax, yet for an increasing number of families — particularly those with assets in London — it’s becoming anything but.

The nil rate band (NRB) has been frozen at £325,000 since April 2009, while the residence nil rate band (RNRB) has been fixed at £175,000 since April 2020.

During the same period, London property prices and other asset values have risen dramatically. The result is a form of fiscal drag that has quietly drawn hundreds of thousands of additional estates into the IHT net, creating a substantial latent tax liability many families have yet to fully appreciate.

The freeze in context

The NRB has stood at £325,000 since 6 April 2009. When it was frozen, the average London house price was approximately £250,000. Had the NRB kept pace with inflation, it would now stand at somewhere in the region of £475,000 to £500,000. Instead, it remains anchored at the same figure, and current government policy confirms this freeze will continue until at least April 2030.

The RNRB, introduced in April 2017 and reaching its maximum of £175,000 from April 2020 onwards, has similarly been frozen. It is worth noting that the RNRB is itself subject to a tapered withdrawal where the net value of the estate exceeds £2m, reducing by £1 for every £2 above that threshold. In London, where property values and accumulated wealth can easily push an estate beyond the £2m mark, many families find themselves unable to benefit from the RNRB at all.

For a married couple or civil partners, the combined maximum available NRBs (assuming full transferability and eligibility for the RNRB) amount to £1m. That figure has not changed for several years and is not expected to change for several more. In a city where even a modest family home can comfortably exceed that sum, the consequences are stark.

London asset growth: The engine of fiscal drag

London has long been one of the most buoyant property markets in the world, and the period during which the NRB has been frozen has seen extraordinary growth.

Between 2009 and 2025, average London property prices have risen from approximately £250,000 to in excess of £530,000 — an increase of more than 110%. In many of London’s more sought-after boroughs, the figures are considerably more pronounced. In areas such as Kensington and Chelsea, Westminster, Camden and Islington, average property values have frequently exceeded £1m, with family homes in prime and super-prime locations routinely valued at several million pounds.

The effect is a widening gap between the value of the estate and available IHT reliefs. Where once IHT was a concern primarily for the very wealthy, it now touches an increasingly broad cross-section of London homeowners and professionals whose estates have grown in value by virtue of asset appreciation rather than deliberate accumulation.

Quantifying the latent tax exposure

To illustrate the scale of the issue, consider the position of a married couple who purchased a family home in a London suburb in 2009 for £500,000. They also held savings and investments of £300,000, giving a combined estate value of £800,000 at that time.

Assuming full availability of both spouses’ NRBs and RNRBs on the second death, the couple would have had a combined threshold of £650,000 (the RNRB not yet being available), leaving only £150,000 subject to IHT at 40%, producing a liability of £60,000.

Fast forward to 2026, and the picture is very different. The same property may now be worth £1.1m or more, and prudent saving and investment growth may have taken the non-property assets to £600,000 or beyond. The total estate would now stand at approximately £1.7m.

The combined available threshold, including both NRBs and RNRBs, remains at £1m. The taxable estate is therefore £700,000, giving rise to an IHT liability of £280,000 — an increase of more than four-and-a-half times the liability that would have arisen in 2009, driven almost entirely by asset appreciation against a frozen threshold.

For families in higher-value areas of London, the position is more acute still. An estate valued at £2.5m, for instance, would lose the benefit of both RNRBs entirely due to the taper.

The combined threshold would revert to £650,000 (two NRBs only), leaving £1.85m chargeable to IHT at 40% — a liability of £740,000. Had the NRB risen broadly in line with inflation since 2009, the available combined NRBs alone would be approaching £1m, saving the estate an additional £140,000 or more in tax, before we even consider what an inflation-linked RNRB might have provided.

Across London as a whole, HMRC statistics reveal that IHT receipts have risen sharply in recent years, reaching record levels. In the tax year 2024–25, IHT receipts exceeded £7.5bn nationally, with London and the Southeast contributing a disproportionate share. The number of estates liable to IHT has increased markedly, and a significant driver of that increase is the interaction between frozen thresholds and rising property values.

The broader impact

The latent IHT burden created by this dynamic has consequences that extend beyond the immediate tax charge. For many London families, the family home represents the single largest component of the estate. Where the IHT liability is substantial and the estate is illiquid — that is, where most of the value is tied up in the property — executors and beneficiaries may be forced to sell the home to meet the tax liability.

This is a particularly distressing outcome where the property has been the family home for decades and where surviving family members may still be living there.

The problem is compounded by the fact that IHT is generally payable within six months of the end of the month of death, with interest accruing thereafter. While HMRC does permit payment of IHT attributable to certain assets (including land and property) by instalments over 10 years, interest is charged on the outstanding balance. For families facing a six- or seven-figure tax bill, this can create significant cash-flow difficulties and emotional strain at an already difficult time.

Mitigation strategies

Given the scale of the exposure that many London families now face, proactive estate planning is more important than ever.

The prolonged freeze of the NRB and the RNRB residence nil rate band, set against the backdrop of extraordinary asset price growth in London, has created a latent inheritance tax exposure on a scale that would have been difficult to foresee when the NRB was first fixed at £325,000 in 2009.

What was once considered a tax affecting only the wealthiest in society now reaches deep into London’s middle classes — families whose principal asset is often nothing more than a home purchased years or decades ago, the value of which has been carried upwards by market forces entirely beyond their control.

The good news is that, with timely and well-considered planning, much can be done to reduce or manage the burden. The key, as with so much in tax planning, is to act early.

Every year of delay is a year of lost exemptions, a year closer to the seven-year clock not being satisfied, and a year in which asset values may continue to rise against a stubbornly static threshold. For London families with estates that are approaching or have exceeded the available nil rate bands, a review of their IHT position is not merely advisable — it is urgent.