December’s update from HMRC shows that Inheritance Tax (IHT) receipts reached £5.7bn through the first two-thirds of this financial year (April to November).
It marks an 11% increase on 2023/24 (£5.2bn) through the same eight months of the year, putting 2024/25 on course for a fourth consecutive annual IHT-take record for the Treasury.
The data follows reforms to the IHT regime announced at the Budget which the OBR estimates will raise a further £2.5 billion by 2029-30, with receipts reaching £13.9 billion by 2029/30. By the end of the decade, the proportion of deaths subject to inheritance tax is forecast to rise from 5.2% in 2023/24 to 9.5% (2029/30).
Last full tax year inheritance tax raised £7.499bn and currently just one in 20 estates is liable but government estimates suggest that this will increase to one in ten estates by 2030.
Simon Martin, head of UK technical services at Utmost Wealth Solutions, said: “The IHT snowball continues to gather growing momentum as the extended freeze in Inheritance Tax thresholds and rising property prices looks set to continue delivering record tax hauls to the Treasury.
“Changes to the IHT and non-dom regime announced at the Autumn Budget will spread the net further, leading to more and more estates being caught up in the tax as the Treasury clamps down on certain areas. While Inheritance Tax is often perceived as one of the more unpopular taxes, there are steps that can be taken to mitigate its impact, and this Budget will no doubt create the stimulus for people to urgently assess their circumstances.
“We expect to see a spike in demand for professional advice around inheritance tax as individuals reconsider their plans, which could see strategies shift to lifetime gifting earlier and more often to individuals or trusts and perhaps spending their pension pots. There could also be increased interest in insurance policies and death benefits that can protect individuals against these rising IHT liabilities.”
Stephen Lowe, group communications director at retirement specialist Just Group, said: “Inheritance Tax is set for another record year with receipts already over £550 million ahead of the total through the same period in 2023/24.
“With the thresholds frozen for a further two years by the Chancellor in the Budget and further exemptions removed, IHT is set to deliver an increasing tax-take for the Treasury. With the number of deaths subject to IHT now forecast to reach nearly 10% by the end of the decade, it underscores the importance of people staying on top of the value of their estate.
“As a starting point, we encourage people to make sure they have an up-to-date valuation of their estate to help them understand if they are likely to incur IHT. Estate planning is complex and professional financial advice can be immensely helpful for people who want to manage their estate efficiently and pass on the maximum inheritance to loved ones.”
Shaun Moore, tax and financial planning expert at Quilter said: “Christmas has come early for the government, as this morning’s figures from HMRC reveal inheritance tax receipts for the period of April to November 2024 climbed to £5.7 billion, an increase of £0.6 billion compared to the same period last year.
“More and more people are being ensnared by inheritance tax, and this will only increase. With the IHT threshold frozen until 2030, coupled with pensions being added to the taxable estate from April 2027, the government’s coffers will get a substantial top-up in the coming years.
“Farmers will also start to add to these figures as Agricultural Property Relief becomes less generous. This could result in farming families facing bigger inheritance tax bills, which could force difficult decisions about the future of their farms. Additionally, the government’s changes to reliefs for AIM shares and Business Relief are also expected to boost its revenue.
Moore continued: “Capital Gains Tax (CGT) receipts have also increased, thanks to a combination of people selling off assets ahead of the widely anticipated CGT increases before the budget, as well as the impact of those tax hikes. October saw a marked increase in tax take, and this morning’s figures show November followed suit. CGT bills totalled £222 million in November, and there has now been a £230 million increase in tax take between April to November this year compared to the same period last year.
He further said: “PAYE income tax and National Insurance contributions (NICs) have also been rising exponentially, resulting in a total tax take of £277.6 billion so far this tax year, a £6.7 billion increase year on year. This is likely to continue rising as changes to employer NICs, including both an increase in the rate as well as a reduction in the earnings threshold at which employers begin to pay NICs, are expected to significantly boost the government’s revenues.
“Fiscal drag is a tried and tested policy on which the government has grown heavily reliant, and the latest budget will only exacerbate its impact. Looking ahead, the government’s tax take is expected to soar, all without increasing headline tax rates. However, it will need to tread carefully and monitor the long-term impacts of its policies on taxpayers, as well as ensuring they do not weigh too heavily on economic growth.
“Ultimately, with tax bills on the rise, careful financial planning tailored to people’s personal circumstances and financial goals will be vital.”
Nicholas Hyett, investment manager at Wealth Club said: “Inheritance tax continues to be the gift that keeps on giving, at least as far as the government is concerned.
“Yet again HMRC is increasing the amount that it’s milking from the estates of the recently deceased. Decades of rising property prices have been a major driver, pushing estates above frozen nil rate bands, and from April 2027 pension pots will fall into the taxman’s net as well meaning even more families are dragged into paying this most hated of taxes.
“Nor is that it.
“Farmers are already in uproar about the new Tractor tax, and removing IHT relief on familiy businesses could mean the final nail in the coffin for businesses that would otherwise have been passed on through many generations. These changes will harm many, many businesses and do not reflect the governments objectives to get the economy moving.
“All government’s need to balance short and long term priorities. Short term financial gain may add pounds in the pocket now, but could easily lead to long term pain if people are put off saving to support themselves in retirement and businesses decide not to invest or shut up shop altogether.”
What can investors do to mitigate their inheritance tax bill?
Hyett continued: “Despite recent reforms there are still ways to reduce the inheritance tax paid by your estate, although many of them do require time and more risk:
Those concerned about inheritance tax should consider:
1. Giving money away early. Gifts taken out of regular income, which are not deemed to affect the giver’s standard of living, are inheritance tax free on day one – as are certain smaller gifts. Timing is key as you can give unlimited amounts away but typically these take seven years to be completely inheritance tax free. Of course, once you give away the money you’ve lost control. If you need it back for an emergency, that’s not an option.
2. Investing in unlisted companies that qualify for Business Property Relief. These are typically inheritance tax free after two years. Investing in unquoted businesses can be risky, however, unlike giving the money away, you retain control. From 2026 you will have an overall £1 million Business Relief Allowance. Anything in addition will be taxed at 20%.
3. Investing in an AIM ISA. ISAs are not inheritance tax free. When you pass away, your loved ones could miss out on 40% of your hard-earned cash. AIM ISAs are a popular, although much riskier way, to reduce this. Currently after two years they could be IHT free. From 2026 the IHT will be halved to a rate of 20%.”
Changes to Inheritance tax announced at the Autumn Budget included:
• An extension to the freeze on IHT thresholds, which have been frozen for a further two years (until 2030).
• Agricultural Relief and Business Property Relief have been reformed, meaning that from April 2026, the first £1m of qualifying combined assets will have no inheritance tax at all, but for assets overt £1m a 50% relief will apply, at an effective rate of 20%.
• Qualifying AIM shares will no longer have full exemption from IHT, instead from 2026 they will have an inheritance tax rate of 20% if they are held for two years.
• From 6th April 2027, inherited pensions could be subject to inheritance tax in addition to income tax levied on the recipient meaning passed down pensions could be taxed at an effective rate of up to 67% – subject to consultation.
