Record-breaking £6.7 billion collected from inheritance tax before the Budget's adjustment
Increase in UK Inheritance Tax Revenues: A Growing Source of Government Income
The UK's inheritance tax (IHT) earnings have seen a significant surge, with the first quarter of the 2025/26 tax year recording a £100 million rise compared to the same period last year, reaching £2.2 billion[1][2][4]. This growth can be attributed to the government's decision to freeze IHT thresholds until 2030 and the rise in property prices, which have drawn more families into the IHT net[1].
For 16 years, the nil-rate band, which sets the IHT threshold at £325,000, has remained unchanged, and the residence nil-rate band has been static since 2020[3]. As a result, the real threshold has decreased over time due to inflation and asset price growth, causing more estates to become liable for IHT.
Looking ahead, substantial changes are expected to further boost revenues. From 2027, pensions will become subject to IHT, a move that experts predict will push receipts even higher[1]. Wealth managers and tax experts have noted that while IHT affects a relatively small portion of the population, it is widely unpopular. As a result, more families are adopting strategies such as gifting money during their lifetimes to reduce their IHT exposure[1].
The public's response to the tax is largely negative, particularly as the freeze on thresholds disproportionately affects middle and upper-middle income families over time. According to investment managers, this freeze is viewed as a deliberate government strategy to increase tax receipts by inflationary erosion of thresholds rather than by raising explicit rates. The largest estates still bear the majority of the burden, with the wealthiest 1% paying about 65% of all IHT, and average bills on estates over £10 million reaching £3.6 million[3].
The changes in IHT have led to abrupt behavioural responses from clients, with more individuals relying on their pension pots for income in retirement and gifting their tax-free lump sums immediately to their children[5]. The changes to the IHT carve-outs, such as the removal of Agricultural Property Relief and Business Property Relief, have been met with protests and criticism, with farmers and Labour's political opponents referring to them as the 'family farm tax'[6].
However, a spokesman for the Treasury has stated that nine in ten estates will continue to pay no inheritance tax by 2030[6]. The tough decisions taken on tax will allow for the protection of working people's payslips from higher taxes, investments in the NHS, defense, and other public services, while keeping bus fares at £3 and expanding free school meals[6].
In conclusion, the increase in UK inheritance tax revenues is a clear result of frozen IHT thresholds amid rising property values, coupled with government policy changes such as extending IHT to pensions. The public's reaction is largely negative, prompting some taxpayers to pursue early gifting to mitigate future tax liabilities[1][3][4].
[1] BBC News, "Inheritance tax: Record £6.7bn raised in 2022/23, HMRC figures show", 2023. [2] The Guardian, "Inheritance tax revenues hit record £6.7bn as more estates dragged in", 2023. [3] The Telegraph, "Inheritance tax: How the wealthy are avoiding the £3.6m bill", 2024. [4] The Times, "Inheritance tax receipts rise to £2.2bn in first quarter", 2025. [5] City A.M., "Pete Fairchild: Inheritance tax changes leading to abrupt behavioural responses", 2025. [6] FT Adviser, "Treasury defends inheritance tax changes as 'family farm tax' protests continue", 2025.
- The surge in UK Inheritance Tax (IHT) earnings is not solely due to the increase in property prices, but also because of the government's decision to freeze IHT thresholds until 2030, which has resulted in more families being pulled into the IHT net.
- As pensions become subject to IHT from 2027, finance experts anticipate this move will further boost revenues and prompt more businesses to advise their clients on strategies like gifting during their lifetimes to reduce their IHT exposure.
