Inheritance tax receipts have surged to £5.2 billion in the first seven months of the current tax year as frozen thresholds and higher value assets continue to hit estates, official figures show
The latest figures from HMRC shows inheritance tax (IHT) receipts are up £200 million annually and continues an upward trend over the past two decades.
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Rachael Griffin, tax and financial planning expert at Quilter, said: “IHT receipts rose to £5.2 billion, which is £0.2 billion higher than the same period last year, as more people who may not feel hugely wealthy get snagged by the tax for having lived through a decade of frozen thresholds and rising house prices.
Will there be more inheritance tax changes in the Budget?
IHT reliefs came under attack in the 2024 Budget.
Pensions will be part of an estate for IHT calculations from April 2027, while business relief, agricultural relief and the alternative investment market will face new restrictions.
Nicholas Hyett, investment manager at Wealth Club, said: “All of these changes are sold as closing loopholes and targeting the wealthy without effecting “working people”, never mind that they have been damaging for small businesses, family farms and UK capital markets.”
Hyett said there may be a final grab for more IHT revenues this time round, through attacks on gifting rules.
He said: “The current seven year rule, after which gifts are free from IHT, could be extended or there could be a move to cap gifts out of surplus income, which are currently free from inheritance tax straight away.
“The reality though is that the government is close to the bottom of the barrel where IHT is concerned.”
Griffin said a lifetime gifting cap would represent a major structural shift and could introduce significant complexity into intergenerational financial planning.
How to cut your inheritance tax bill
You can only plan based on the current tax system and any changes in the Budget would hopefully have a transitional period.
Griffin added: “Strategies to mitigate any reforms announced next week will emerge once the details are known, but for those concerned about a future bill, making use of the £3,000 annual gift allowance remains a simple and effective way to reduce the value of an estate on death.”
Other options include sharing and owning assets with your spouse, who in most cases will be able to inherit them tax-free and considering leaving money to charity to reduce your IHT liability.
Investing in unlisted companies that qualify for business property relief is still typically inheritance tax free after two years but from 2026 you will have an overall £1 million Business Relief Allowance. Anything in addition will be taxed at half the normal rate or 20%.
Additionally, investing in an alternative investment market ISA, although risky, is currently IHT-free after two years, but there will be a rate of 20% from 2026.
Jonathan Halberda, specialist financial adviser at Wesleyan Financial Services, said: “It’s understandable to want to get ahead of potential changes. But reacting to rumour is a risky game. We’ve seen people make panic decisions in the run up to Budgets previously, from rushed wealth transfers to early pension drawdowns, that end up triggering unexpected tax bills and undermining long-term financial security.
“The smart move right now isn’t to panic, but to prepare. Speak to your family, get your paperwork in order, and be ready to seek expert advice quickly after any announcements so you can act quickly with clarity and confidence.”
