Inheritance tax receipts rise to £5.8 billion as more loved ones pay up

Inheritance tax receipts surged to £5.8 billion in the first eight months of the current tax year, official figures show.

The latest data from HMRC shows inheritance tax (IHT) receipts are up £84 million annually and continues an upward trend over the past two decades as frozen thresholds and higher value assets continue to hit estates.

Fewer than 4% of estates pay IHT now, but there are fears that this figure will rise, especially when pensions are included in IHT calculations from April 2027.

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The Office for Budget Responsibility (OBR) has already forecasted that IHT will generate a record £9.1 billion for the Treasury in 2025/26 and its revenues are expected to raise more than £14 billion in 2029/30.

Shaun Moore, tax and financial planning expert at Quilter, said: “With the nil-rate band still fixed at £325,000, rising property values and accumulated savings mean more estates are being drawn into IHT, often among families who would not traditionally consider themselves wealthy. What was once viewed as a tax affecting a small minority is steadily becoming a broader concern.

“That pressure is set to intensify further. From 2027, pensions are due to be brought into scope for inheritance tax, significantly expanding the tax base at the same time as thresholds remain unchanged. For many households, pensions now represent one of the largest components of wealth, meaning future liabilities could be far larger than people expect.”

How is inheritance tax changing?

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.

Agricultural and business property reliefs for IHT will also be capped up to £1 million from April 2026, although the allowance was made transferable between spouses in the 2025 Budget.

Nicholas Hyett, investment manager at Wealth Club, said: “All of these changes are sold as closing loopholes and targeting the wealthy without affecting ‘working people’, never mind that they have been damaging for small businesses, family farms and UK capital markets.”

There were concerns that the chancellor would go further in her 2025 Budget with a clampdown on gifting rules but this didn’t materialise.

How to cut your inheritance tax bill

You can only plan based on the current tax system and some allowances remain.

Assets can be inherited by a spouse tax-free and leaving money to charity can also reduce your IHT liability.

Giving money or assets away as gifts can reduce the value of your estate, with no IHT payable if you live for seven years after the transfer.

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: “Christmas and New Year and important times for Inheritance Tax planning.

“The festive season might involve gifting – which can be an effective way of managing your inheritance tax exposure, but which comes with its own particular rules.

“Meanwhile, January often brings fresh plans from everything to savings and investments to retirement – all of which can have a bearing on your wider IHT plans.

“We often see a flurry of big financial decisions in the new year – whether it’s passing on money early, adjusting retirement plans or rethinking investments – but these are moves that need careful thought, not urgency. We’ve seen the cost of panic planning before. A rushed gift or pension withdrawal can trigger unexpected tax bills and leave a lasting mark on someone’s long-term financial security.

“If there’s one thing to do over the festive break, it's to pause and prepare. Talk to your family, review your paperwork, and be ready to act with expert advice in the new year.”