Homeowners with average priced properties face £100k hit after 'double whammy' tax raid

The reforms will particularly impact single and childless homeowners, who can only shield £325,000 from death duties, unlike couples who can protect up to £1million.

Official forecasts show an additional 10,500 families will be caught by the tax in 2027 who would previously have avoided it.

A homeowner with a property worth the average price of £308,782 and pension savings of £459,000 will face a £107,000 inheritance tax bill under the new reforms, according to analysis by wealth manager Quilter.

The pension savings figure represents the amount needed for a moderate lifestyle in retirement, as defined by the Pensions and Lifetime Savings Association.

This moderate lifestyle includes £74 weekly food spending, two European holidays and a UK long weekend each year.

The changes come alongside the Chancellor's decision to freeze both the £325,000 nil-rate band and the £175,000 residence nil-rate band until 2029-30.

The £175,000 residence nil-rate band offers no protection for single homeowners without children, as this allowance is exclusively available to those leaving their main property to direct descendants.

This disparity in tax treatment means single homeowners with average properties and modest pension savings will face significantly higher tax burdens compared to their married counterparts.

The regional impact of these changes varies significantly across the UK, with London homeowners facing the heaviest burden.

A single person in London with an average-priced home of £525,586 and moderate retirement savings will see their inheritance tax liability soar to £194,000 in 2027, compared to just £10,000 today.

In Northern Ireland, Scotland and Wales, typical homeowners who previously paid no inheritance tax will now face bills of £59,821, £62,818 and £70,300 respectively, if they have accumulated a £459,000 pension pot.

Roddy Munro, tax and pensions specialist at Quilter, warned: "The double whammy of a frozen nil rate band and the inclusion of pensions in your estate means many more people with average-priced properties and modest pension wealth will become liable for a tax originally intended for the very wealthy.

"These inflated estates along with the variance in house prices across the UK means IHT becomes even more of a post code lottery.

“Pensions are primarily a retirement vehicle, meant to be depleted over time. Ideally, you would pass away just as your pension pot empties, but this is rarely the case.

"The new regime means those who saved significant sums into their pensions, assuming they would be free of inheritance tax, now face new challenges. Similarly, those who sadly pass away early on in their retirement will have less to pass on to their beneficiaries.

“However, there are steps you can take to mitigate your IHT bills. Simple actions like early gifting can reduce your taxable estate if you live seven years beyond the gift date. More flexible options, such as onshore bonds wrapped in trust, also play a crucial role. These bonds benefit from favourable tax treatment."

The Treasury has defended the changes, stating they were necessary to address public finance gaps and invest in Britain's public services.