Inheritance tax takings increased by nearly 7% in three months, raking in billions of pounds between April and July, according to a new report.
Data published by HM Revenue and Customs (HMRC) showed inheritance tax (IHT) receipts hit £3.1billion during this period, marking a £200million increase when compared to the same three months last year. This trend is only forecast to continue. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Inheritance tax receipts continue their unrelenting rise. We are only part of the way through the year, but it already looks likely that we are in for another record year for this most unpopular of taxes.”
IHT receipts are forecast to increase further in the years to come due to policy changes announced in Rachel Reeves’s last Autumn Budget. The changes include limits to agricultural and business reliefs to take effect from April 2026, and extending the freeze in IHT nil-rate bands until 2030.
The nil-rate band – the tax-free threshold of a person’s estate – has remained at £325,000 since 2009, despite soaring house prices and rising inflation.
The Government also recently confirmed it will proceed with plans to include pensions in the estate for deaths from April 2027.
Ms Morrissey said: “The decision to include pensions for inheritance tax purposes has garnered a lot of attention and has put the tax firmly on people’s radar.
“This means that those who think they may be affected can start putting a strategy in place to try and mitigate it.”
Ms Morrissey noted that various gifting allowances, such as the £3,000 annual allowance and gifting out of surplus income, “will prove useful.” These allowances enable people to gift certain amounts of money to beneficiaries tax-free and reduce the worth of a person’s total estate.
However, Ms Morrissey warned: “It is hugely important that someone does not gift away too much too early to loved ones and potentially leave themselves short in their haste to avoid this tax.”
She also pointed out that inheritance tax is not something that many families will need to worry about.
Ms Morrissey said: “There’s a set of thresholds available – known as nil rate bands. These mean that assets of any value can pass between spouses inheritance tax free, and that the surviving spouse or civil partner inherits any of the deceased’s remaining nil rate bands.”
The rules mean that couples can pass on up to £1million to their children or grandchildren free of inheritance tax.
However, Ms Morrissey said: “There will be families who are not so lucky and could be caught unawares. Rapid house price growth in recent years may mean there are families out there with a looming tax bill they know nothing about.
“The same can be said for cohabiting couples who may have been together for decades but still don’t have the same rights as a married couple or civil partner. It’s important these couples understand the potential implications for them so they can plan ahead.”
Jonathan Halberda, specialist financial adviser at Wesleyan Financial Services, said: “With the Government looking at further ways to balance the national books, there is growing speculation that they could look at ways of increasing IHT revenue even further.
“How to manage IHT exposure is the most common question that we’re receiving from clients. And what it really comes down to is good planning.”
Mr Halberda shared the following four steps:
Gift wisely
Mr Halberda said: “Handing over money or possessions during your lifetime can reduce the value of your estate for IHT purposes. You can give up to £3,000 a year to anyone tax-free, or unlimited amounts to your spouse or civil partner.
“Regular gifts from your income can also help, but remember, anything given in the seven years before death may still be taxed.”
Use trusts to ring-fence wealth
Mr Halberda said: “Placing assets in a trust means they’re no longer part of your estate when IHT is calculated, but you still control who benefits, and when. Trusts can be highly effective, but they’re also complex, so expert advice is essential.”
Secure your partner’s position
Mr Halberda said: “Married couples and civil partners can transfer everything to each other tax-free, including property. Unmarried couples don’t get the same treatment, which is why, for some, formalising the relationship can make financial sense.”
Put your wishes in writing
Mr Halberda said: “A Will ensures your estate is distributed as you want, and helps you make full use of allowances. Without one, standard rules apply, which could mean a bigger bill and less control over who inherits.”
