Loved ones inheriting money, property and other assets paid a record amount in inheritance tax (IHT) last year, according to today’s (23 April) update from HMRC.
Official figures show inheritance tax receipts totalled £8.2 billion in 2024/25 – the fourth consecutive annual record sum. It surpasses the £7.5 billion total from 2023/24 by £750 million, or 10%.
Stephen Lowe, director at retirement specialist Just Group, says: “It’s now four years on the trot IHT has delivered record-breaking annual tax takes for the Treasury, on the back of a combination of frozen thresholds and rising property prices.”
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How property prices and frozen thresholds are impacting inheritance tax receipts
IHT thresholds – including the £325,000 nil-rate band (the amount each person can pass on IHT-free) and the £175,000 residence nil rate band (the allowance each person gets related to the family home that can be passed on IHT-free) – are frozen until 2030.
With several years of the freeze remaining, an increasing number of families will find themselves needing to pay often hefty IHT bills.
While the IHT-free thresholds have been frozen, the value of assets like property have soared, tipping more people over the nil-rate limits.
Shaun Moore, tax and financial planning expert at wealth manager Quilter, says: “Property prices have grown rapidly in recent years, particularly in areas such as London and the South East, which in many cases will leave little to no room for additional assets to be left to loved ones before IHT is applied.”
More people paying inheritance tax
Chancellor Rachel Reeves’s decision to set a £1 million cap on agriculture and business property relief from April 2026 and to cut IHT breaks on AIM shares by 50% will add substantially to IHT bills. Pension wealth passed on to beneficiaries will also be subject to IHT from April 2027.
A Freedom of Information (FOI) request to HMRC by investment firm Interactive Investor in February 2025 revealed 153,000 estates face a new or additional IHT liability between 2027 and 2030 due to just the Budget’s pension changes.
In the 2027/28 tax year alone, the average IHT liability is expected to be £169,000, increasing by around £34,000 when pension assets are included in the value of the estate, according to OBR estimates.
The budget pension change means the estates of individuals with relatively modest assets and pension savings could face a new IHT liability.
Interactive Investor calculates someone with a mortgage-free property worth £300,000 and a pension worth £100,000 would face an IHT liability of £30,000 from April 2027, rising to £110,000 for pensions valued at £300,000.
The calculations assume the full nil-rate band (£325,000) is available and that the additional residence nil-rate band (£175,000) does not apply.
“IHT has long since been a deeply unpopular tax, and its reputation is unlikely to improve any time soon. What was once viewed as a tax on only the wealthiest of families has spread to middle income families, many of which may not even realise they are affected,” says Moore.
HMRC crackdown
Despite record receipts, HMRC believes up to £325 million in IHT has been underpaid by wealthy taxpayers in the last year to 31 March 2024, according to analysis by UHY Hacker Young, a national accountancy group.
UHY Hacker Young says this figure, known as ‘tax under consideration’ could increase significantly in future years following IHT increases from April 2026.
Neela Chauhan, partner at the accountants, says: “Sharp increase in taxes is often followed by an increase in tax avoidance and tax evasion as people try to blunt the impact of that tax rise.” A crackdown on evasion is likely to follow.
In the tax year ending 31 March 2024, HMRC brought in an extra £285 million in tax from investigations into the underpayment of IHT, UHY found – 14% up on £254 million collected from IHT-focused tax investigations in the previous year.
How to lower your inheritance tax bill
Despite recent reforms there are still ways to legitimately reduce the inheritance tax paid by your estate, although many of them do require time and more risk.
According to Nicholas Hyett, investment manager at Wealth Club, 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 free from inheritance tax. 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 inheritance tax rate will stand at 20%.
We look at how you could shield your ISAs from inheritance tax in a separate guide.
