UK homeowners underestimating wealth and potential IHT bills

Many UK homeowners may be significantly underestimating both their wealth and their exposure to inheritance tax (IHT), according to research from savings platform Flagstone.

The study of 2,000 homeowners aged 45 and over found that more than one in five people with estates worth more than £1m still described themselves as “just getting by”, alluding to a growing disconnect between perceived financial position and actual wealth.

Flagstone’s analysis, which considered property, savings, pensions, business equity, life insurance and possessions, found that 51 per cent of respondents had estates worth more than £500,000 and 13 per cent had estates above £1m.

However, almost half (47 per cent) said they felt they were only managing financially.

The findings come as rising house prices and frozen tax thresholds bring more estates into scope for IHT.

According to the Office for Budget Responsibility, IHT receipts are forecast to reach £9bn in 2025–26 and rise to £15bn by 2030–31.

Across those surveyed, the average estimated estate value was £410,252, suggesting many homeowners may already be close to, or above, the £325,000 IHT threshold without realising it.

Awareness of potential tax liabilities also appeared limited. Among homeowners with estates above the threshold, 70 per cent said they had never calculated their likely IHT bill.

The research points to property values as one reason for the disconnect. Previous market data suggests many homeowners are uncertain about the true value of their homes and may underestimate the amount of equity they hold, while accumulated savings and investments can also significantly increase total estate values.

"With tax changes coming into effect from April 2027, having a clearer understanding is only going to become more important,” said Flagstone savings expert, Katie Horne.

"Taking a step back and looking at your estate as a whole can be an important first step, especially when so much of the value is spread across different assets. That can make it difficult to build a clear picture of how much your estate is worth, or how close it may be to the IHT threshold.”

Horne added that tools such as IHT calculators can help people build an initial picture of their exposure, while those with more complex finances may benefit from professional advice.

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