Inheritance tax receipts hit £1.2bn

More people are being hit by inheritance tax amid rising property prices - and 16m are unaware of whether or not their families could be left to pay a bill when they die.

A senior couple using a laptop and going over paperwork
(Image credit: Getty)

Inheritance tax (IHT) receipts totalled £1.2bn in the first two months of the tax year, according to government data published today.

This is £100m more than the same period last year.

The new figures come amid the Office of Budget Responsibility’s forecasts that £38bn will be raised over the next five years from IHT, with receipts rising to a hefty £8.4bn in the 2027/28 tax year as fiscal drag pulls more people into the IHT net.  

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Inheritance tax bands frozen  

Chancellor Jeremy Hunt confirmed the threshold for inheritance tax (IHT) would be frozen until April 2028 in his Autumn Statement last year, despite double-digit inflation. 

IHT has become “a real hot potato” in recent weeks, says Laura Hayward from wealth management firm Evelyn Partners, with pressure on the government to get rid of the tax.

“However, it’s important to remember that no decisions have been announced as of yet and while this debate bubbles away more families are being dragged into paying IHT,” she said.

Hayward added: “Today’s fresh data release from HMRC shows the extent to which the Treasury is continuing to benefit from ever increasing IHT receipts. What’s more, given inflationary growth of asset values coupled with frozen allowances, as things stand the cash cow that is IHT looks set to be very lucrative for the Treasury for many years to come.” 

How can you minimise your inheritance tax bill? 

A third (32%) of UK adults over the age of 55 - 16.4 million people - are unaware of whether or not their families could be left to pay a tax bill when they pass away, according to research from financial planning experts abrdn.

Worryingly, three in ten (29%) over 55s don’t think their wealth is large enough to need advice on inheritance tax. 

Yet, when asked to value their current wealth, individuals estimated on average they would have a total of £354,000 in assets – which is above the inheritance tax threshold of £325,000 and is double for married couples. In London, the average estimation jumped to £556,999. 

And 70% of the over 55s surveyed admitted they don’t know how to reduce inheritance tax bills for their loved ones.

Shona Lowe, financial planning expert at abrdn, said: “It’s a human instinct to want to pass on as much as you can to your loved ones and understanding the rules around inheritance tax can help you reduce, or even get rid of, that tax bill. Whether that’s using gift allowances which allow an individual to pass on money to loved ones, establishing a trust or making use of business relief the ‘right’ way depends entirely on your individual circumstances.”

She added: “Navigating inheritance tax can be complicated and daunting but it’s a reality of life for more and more people so it’s something to grasp and talk about with loved ones. Our latest research found people feel more comfortable talking about their health problems and politics, than money. But, the sooner you kickstart the inheritance tax conversation, whether that’s with family, friends or a financial adviser, the better.”

Here are three strategies you might be able to use to lower your IHT bill, although it’s always important to discuss your options with a financial advisor:.

  • Make use of the annual gift allowance of up to £3,000 per tax year - this will not be subject to IHT even if you do die within seven years. And if you didn’t use the allowance last year, you can combine it and pass on £6,000. Wedding gifts of £5,000 to children and £2,500 to grandchildren are also protected from IHT. 
  • Set up a trust. Many people choose to make gifts in trust so that the money can only be accessed at a certain time or for a particular reason. Life insurance can also be set up in a trust, so that the money can be accessed immediately to pay an inheritance tax bill.
  • Donate to charity. If you donate at least 10% of your estate to charity, you could benefit from a 4% discount on your IHT rate, lowering it from 40% to 36%.   

You can read more about how to reduce your IHT bill. 

Katie Binns

Katie Binns is an award-winning journalist, and former Sunday Times writer where she spent 10 years covering news, culture, travel, personal finance and celebrity interviews. She has also written for the Times, Telegraph, i paper and Woman and Home magazine.

Her investigative work on financial abuse has examined the response of banks, the Financial Ombudsman and the child maintenance service to victims, and resulted in a number of debt and mortgage prisoners being set free.