Inheritance tax receipts set to hit a record

The taxman is collecting more inheritance tax (IHT) than ever before and this trend is set to continue. We explain why and what you can do about it.

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The latest data from HM Revenue and Customs (HMRC) show that Inheritance Tax Receipts (IHT) reached £3.9 billion in the six months from April to September this year- a £400 million rise from the same period last year as more estates are pulled into the IHT net due to frozen thresholds.

Nicholas Hyett, Investment Manager at Wealth Club said: “Inflation, rising house prices and frozen allowances are pushing more families within the reach of inheritance tax every year. 

Given they’re no wealthier than they were before, and possibly worse off given the cost of living crisis, it’s no wonder inheritance tax is the most unpopular tax in Britain.”

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Inheritance tax bands frozen

With IHT allowances being frozen until 2028, more taxpayers will be pulled into paying IHT as wages increase with inflation, a process also known as fiscal drag

John Glencross, CEO and Co-Founder of Calculus, said: “Inheritance tax receipts have maintained an upward trend, remaining elevated due to the extended freeze on IHT thresholds until at least April 2028.”

Fiscal drag hits us all – even if we don’t change tax band. That’s because as our pay rises with inflation, more and more of our pay packet is taxed and our overall tax burden increases.”

The latest data by the Office for National Statistics show UK wages rose at a faster rate than inflation for the first time since October 2021, at an annual rate of 7.8% between June and August. 

Myron Jobson, Senior Personal Finance Analyst at Interactive Investor said: “We’re facing the highest overall tax burden in a generation thanks to the deep freeze of tax thresholds and allowances which, in tandem with wage inflation, means we’ll be more in tax in the years to come. 

Years of rising house prices are also playing a part in dragging more taxpayers into the IHT net. 

As a result, experts warn that 2023 continues to be on track for a record-breaking year for the Treasury in IHT receipts. 

How to minimise your Inheritance Tax Bill 

Estates over £325,000 are charged with IHT at 40%. Passing your main residence to children or grandchildren will add an extra £175,000 to this, and spouses can share this allowance. 

Experts say you should consider giving money away early by gifting, as this eliminates an IHT bill. But this takes a total of seven years to be completely inheritance tax-free.

You can invest your money in companies that qualify for Business Relief, which is IHT-free after two years. This can be risky, but you still keep a level of control over your money by giving it away as gifts. 

You could also set up trusts, which can only be accessed for a particular reason or at a certain time- which could prove to be helpful with passing on your wealth. 

Read more on how to reduce your IHT bill

Vaishali Varu
Staff Writer

Vaishali has a background in personal finance and a passion for helping people manage their finances. As a staff writer for MoneyWeek, Vaishali covers the latest news, trends and insights on property, savings and ISAs.

She also has bylines for the U.S. personal finance site and Ideal Home, GoodTo, inews, The Week and the Leicester Mercury

Before joining MoneyWeek, Vaishali worked in marketing and copywriting for small businesses. Away from her desk, Vaishali likes to travel, socialise and cook homely favourites