Increased Receipts in Inheritance Tax by 10% - Strategies for Lessening Your Inheritance Tax Obligations?
IHT Collections Set New Record in 2024/25, Tops £8.2 Billion as Rising Property Prices and Frozen Thresholds Bite
Taxpayers have paid a record-breaking sum of £8.2 billion in Inheritance Tax (IHT) during the 2024/25 financial year, according to the latest figures from the HMRC. This sum surpasses the £7.5 billion total from the previous year by £750 million or 10%. Inheritance tax receipts have continued to climb for the fourth consecutive year, fueled by high property prices and static tax thresholds.
The HMRC's figures indicate that the increasing number of families caught by IHT is presenting significant challenges, as several years remain until the current thresholds are due to be lifted. By the end of this decade, an increasing number of families are likely to face heavy IHT bills.
Property values have experienced rapid growth in the past few years, particularly in areas like London and the South East, which in many cases leaves little room for additional assets to be passed on to loved ones before IHT is applied. The British government's decision to freeze the IHT nil-rate band at £325,000 until 2030 has led to the value of assets like property outpacing the threshold, placing more estates above the IHT limit.
Government measures such as Chancellor Rachel Reeves's decision to set a £1 million cap on Agriculture and Business Property Relief from April 2026, to cut IHT breaks on AIM shares by 50%, and to subject pension wealth passed on to beneficiaries to IHT from April 2027, are also projected to significantly increase the number of estates owing IHT. The FOI request made by investment firm Interactive Investor in February 2025 revealed that up to 153,000 estates could face a new or additional IHT liability between 2027 and 2030 due to just the Budget's pension changes.
Shaun Moore, tax and financial planning expert at wealth manager Quilter, noted that "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."
HMRC believes that as much as £325 million in IHT has been underpaid by wealthy taxpayers in the last year to March 2024, according to an analysis by UHY Hacker Young. UHY Hacker Young suggests this figure, known as 'tax under consideration', could rise substantially in the coming years, leading to a government crackdown on IHT evasion. In the tax year ending 31 March 2024, HMRC collected an additional £285 million in tax from IHT-focused investigations, a 14% increase on the previous year.
Individuals looking to minimize their IHT liability can consider various strategies, such as giving away money early, investing in unlisted companies qualifying for Business Property Relief, and investing in an AIM ISA. Those concerned about IHT should carefully evaluate their options, keeping in mind that most of these methods come with risks or may require a significant amount of time.
- The increasing IHT receipts highlight the need for personal-finance strategies, such as investing in unlisted companies or AIM ISAs, to help individuals minimize their IHT liability.
- With the British government's decision to freeze the IHT nil-rate band, the value of assets like property has outpaced the threshold, potentially leaving many families with heavier IHT bills in the coming years.
- Property prices, particularly in areas like London and the South East, have been growing rapidly, leaving little room for additional assets to be passed on to loved ones before IHT is applied, thereby increasing IHT liability.
- The newsletter revealing the government's budget changes, like the £1 million cap on Agriculture and Business Property Relief and subjecting pension wealth to IHT, project a significant increase in the number of estates owing IHT from April 2027.
