Inheritance Tax (IHT) receipts are climbing, with the first three quarters of the 2024/25 financial year bringing in £6.3 billion – an 11 per cent increase compared to £5.7 billion during the same period last year.
December receipts alone hit £620 million, reflecting a year-on-year rise of 13 per cent, according to HM Revenue & Customs (HMRC).
This surge is largely attributed to frozen IHT thresholds and the growing value of estates, particularly as property prices and investments continue to rise.
With further changes to IHT rules and exemptions on the horizon, more estates are likely to fall within the tax net, making estate planning essential.
Why are IHT receipts increasing?
The nil-rate band, which is the threshold at which IHT becomes payable, has been frozen at £325,000 since 2009 and will remain unchanged until April 2030, an extension announced in the October Budget.
Similarly, the residence nil-rate band, offering an additional £175,000 allowance for passing a home to direct descendants, is also frozen until the same date.
Rising property and asset values mean more estates exceed these thresholds, leading to increased IHT liabilities.
The Budget also announced other measures that will impact IHT.
Agricultural property relief (APR) and Business property relief (BPR) will change from 6 April 2026, when only the first £1 million of qualifying agricultural and business property assets will be eligible for 100 per cent IHT relief.
Anything over this value will only get a 50 per cent relief. This means an effective tax rate of 20 per cent
In addition, from April 2027, unspent pensions, previously exempt from IHT, will be included in an individual’s taxable estate.
The Office for Budget Responsibility (OBR) predicts that by 2029/30, one in 10 deaths will incur IHT, a sharp rise from one in 20 in 2023/24.
Practical steps to reduce IHT
Proactive planning is the most effective way to manage and minimise your IHT liability. Here are some strategies:
Make use of annual gift allowances
Each individual can gift up to £3,000 annually without it being added to their estate. Over time, this can reduce the taxable value of your assets.
Additionally, small gifts of up to £250 per recipient are exempt.
Take advantage of exempted gifts
Transfers between spouses or civil partners are exempt from IHT.
Gifts to charities are also tax-free and can lower the IHT rate if they account for at least 10 per cent of the estate.
Use trusts to shield assets
Certain types of trusts can remove assets from your taxable estate, potentially reducing IHT.
However, trusts can be complex and may have their own tax implications, so seek professional advice from our team before proceeding.
Plan pension withdrawals
With pensions set to become subject to IHT in 2027, revisiting your drawdown strategy can help you manage your estate’s taxable value.
Consider withdrawing funds gradually to reduce the impact.
Invest in life insurance policies
A life insurance policy written in trust can provide beneficiaries with the funds to cover IHT liabilities, preventing the need to sell inherited assets to pay the tax.
Regularly review your Will and estate plan
Regularly reviewing your Will and estate plan ensures they match your current situation and follow the latest tax rules.
This helps you make the most of any available tax benefits and allowances.
Delaying action could lead to higher tax liabilities and missed opportunities for IHT planning.
Preparing early ensures compliance with upcoming changes and gives you the peace of mind that your wealth will be passed on efficiently.
Are you worried about how IHT could impact your finances?
Contact our team today to discuss your estate planning needs and take the first step towards minimising your IHT exposure.
