Figures released by HM Revenue and Customs (HMRC) this morning show that inheritance tax receipts hit £5.7 billion in the eight months from April to November 2024.
This is £600 million higher than the same eight months last year and continues the upward trajectory over the last two decades.
Last full tax year inheritance tax raised £7.499 billion and currently just one in 20 estates is liable but government estimates suggest that this will increase to one in ten estates by 2030.
Nicholas Hyett, Investment Manager at Wealth Club said, “Inheritance tax continues to be the gift that keeps on giving, at least as far as the government is concerned.
Yet again HMRC is increasing the amount that it’s milking from the estates of the recently deceased. Decades of rising property prices have been a major driver, pushing estates above frozen nil rate bands, and from April 2027 pension pots will fall into the taxman’s net as well meaning even more families are dragged into paying this most hated of taxes.
Nor is that it.
Farmers are already in uproar about the new Tractor tax, and removing IHT relief on familiy businesses could mean the final nail in the coffin for businesses that would otherwise have been passed on through many generations. These changes will harm many, many businesses and do not reflect the governments objectives to get the economy moving.
All government’s need to balance short and long term priorities. Short term financial gain may add pounds in the pocket now, but could easily lead to long term pain if people are put off saving to support themselves in retirement and businesses decide not to invest or shut up shop altogether.”
What can investors do to mitigate their inheritance tax bill?
Despite recent reforms there are still ways to reduce the inheritance tax paid by your estate, although many of them do require time and more risk.
Those concerned about inheritance tax should consider
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.
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%.
Investing in an AIM ISA. ISAs are not inheritance tax free. 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 IHT will be halved toa rate of 20%.”
Changes to Inheritance tax announced at the Autumn Budget included
An extension to the freeze on IHT thresholds, which have been frozen for a further two years (until 2030).
Agricultural Relief and Business Property Relief have been reformed, meaning that from April 2026, the first £1m of qualifying combined assets will have no inheritance tax at all, but for assets overt £1m a 50% relief will apply, at an effective rate of 20%.
Qualifying AIM shares will no longer have full exemption from IHT, instead from 2026 they will have an inheritance tax rate of 20% if they are held for two years.
From 6th April 2027, inherited pensions could be subject to inheritance tax in addition to income tax levied on the recipient meaning passed down pensions could be taxed at an effective rate of up to 67% – subject to consultation.
