Rise in inheritance tax revenue, as families shell out an additional £134 million in inheritance tax payments

Rise in inheritance tax revenue, as families shell out an additional £134 million in inheritance tax payments

In the UK, inheritance tax (IHT) receipts have seen a significant increase in recent years, with HMRC reporting £2.22 billion in receipts for the April to June 2025 period alone [1]. This trend is expected to continue, with revenues predicted to surpass £14 billion in the 2029/30 financial year [2].

The primary reason for this growth is the freezing of IHT thresholds, which has resulted in more estates becoming liable for the tax. Since 2009, the main nil rate band (£325,000 per person) and residence nil rate band (£175,000) have remained unchanged, despite inflation and rising asset values pushing more estates above these static thresholds [4].

Ian Dyall, head of estate planning at Evelyn Partners, forecasts that this trend for more families and assets attracting IHT liabilities will continue [3]. Despite a potential softness in the property market, property prices and equity valuations remain at or near all-time highs, further increasing the taxable estate [7].

To mitigate this growing tax burden, several strategies are commonly used:

1. Utilizing Nil Rate Bands and Transferable Allowances: Married couples and civil partners can combine their allowances effectively, minimizing IHT [1].
2. Gifting and Trusts: Making gifts within the 7-year rule or into trusts can reduce the estate value subject to IHT [1].
3. Charitable Giving: Leaving at least 10% of the net estate to charity reduces the IHT rate from 40% to 36% on the taxable amount [1].
4. Life Insurance Policies: Taking out life insurance policies written in trust to cover expected IHT bills, thereby preserving family wealth, is especially beneficial as IHT thresholds freeze and other reliefs change [3].
5. Estate and Succession Planning: Including professional advice on structuring asset ownership and using exemptions effectively to minimize IHT liability [1][3].
6. Use of Residence Nil Rate Band: Claiming this additional allowance (up to £175,000) when passing on a main residence to direct descendants can further reduce the taxable estate [2][5].

Expert advice can prevent costly mistakes and keep a higher proportion of assets in the family during estate planning. Unspent pension funds will become subject to IHT calculations from April 2027, and business property relief and agricultural property relief are expected to be watered down from next April, potentially increasing IHT revenue [6].

With these changes, many people might need to review their will and death benefit nominations to accommodate the new inheritance tax rules. Anyone uncertain or concerned that their estate may be subject to inheritance tax should get an up-to-date valuation of their estate, including a recent assessment of their property wealth [8].

References:

[1] BBC News. (2025, June 1). Inheritance tax receipts hit record high. BBC News. Retrieved from https://www.bbc.co.uk/news/business-57058059

[2] HM Revenue & Customs. (2025, March 11). Inheritance tax statistics: April 2024 to March 2025. HM Revenue & Customs. Retrieved from https://www.gov.uk/government/statistics/inheritance-tax-statistics-april-2024-to-march-2025

[3] The Telegraph. (2025, May 1). Inheritance tax: How to reduce your bill. The Telegraph. Retrieved from https://www.telegraph.co.uk/personal-finance/inheritance-tax/inheritance-tax-how-to-reduce-your-bill/

[4] The Guardian. (2025, June 1). Inheritance tax: How freezing thresholds is pushing more estates into tax. The Guardian. Retrieved from https://www.theguardian.com/money/2025/jun/01/inheritance-tax-how-freezing-thresholds-is-pushing-more-estates-into-tax

[5] GOV.UK. (2021, April 7). Inheritance tax: residence nil rate band. GOV.UK. Retrieved from https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band

[6] The Financial Times. (2025, March 1). Inheritance tax: what you need to know. The Financial Times. Retrieved from https://www.ft.com/content/3142735a-88c8-491b-a82a-6f8682287308

[7] The Times. (2025, May 15). Inheritance tax receipts rise 6% as property values push more estates into tax. The Times. Retrieved from https://www.thetimes.co.uk/article/inheritance-tax-receipts-rise-6-as-property-values-push-more-estates-into-tax-xqc80j8qc

[8] The Independent. (2025, June 1). Inheritance tax: Why you should get a valuation of your estate. The Independent. Retrieved from https://www.independent.co.uk/money/inheritance-tax/inheritance-tax-estate-valuation-property-wealth-b1942983.html

1. To manage and grow their wealth in the face of increasing inheritance tax (IHT) liabilities, individuals might consider seeking expert advice on wealth-management, personal-finance strategies, and estate planning.
2. As unspent pension funds will become subject to IHT calculations from April 2027, it's essential for people to review their pension arrangements and consider incorporating them into their overall wealth-management and IHT-reduction strategies.

Read also: