UK inheritance tax receipts rise to £3.7bn in five months as thresholds stay frozen

UK inheritance tax receipts totalled about £3.7 billion in the first five months of the current financial year, up £200 million from the same period last year, official HM Revenue & Customs figures show. The rise, roughly 5.7%, comes as asset prices continue to climb and the government maintains a freeze on the nil-rate band, a policy that critics say widens the tax net on middle-income households. The Office for Budget Responsibility has forecast that inheritance tax will deliver a record £9.1 billion in this tax year, underscoring the tax’s growth as receipts accumulate.

The tax, levied at 40% on estates above a £325,000 threshold, carries an extra £175,000 allowance for those who leave property to direct descendants. But the £325,000 nil-rate band has been frozen since 2009, a move described as fiscal drag that pulls more families into the net as property values rise, particularly in the south of England. Chancellor Rachel Reeves announced in last autumn’s Budget that the freeze will continue until April 2030, a decision that critics say compounds the squeeze on middle-class households. There will also be no relief for bereaved families in cash terms in the near term, as unused pension pots are set to be dragged into the IHT net from April 2027. From next April, reliefs for agricultural and business property will be curbed, with 100% relief capped at £1 million per person, a change that could affect family-owned farms and other small enterprises.

Ian Dyall, a wealth manager at Evelyn Partners, said the changes will significantly expand the scope of taxable wealth beyond farms to a wider array of family-owned businesses. He added that the rise in receipts is a wake-up call for many households, and that estate planning remains essential to ensure wealth is passed on in line with a family's objectives while minimizing financial stress for beneficiaries. “Estate planning is complex and difficult, so many families may find it beneficial to seek professional financial advice to understand their circumstances, the impact of the IHT regime and their options for minimising tax liabilities,” Dyall said.

Experts cautioned that the current uplift in receipts reflects not only higher asset values but also policy decisions that leave a larger share of estates exposed to IHT. Nicholas Hyett of Wealth Club noted that IHT has become a persistent revenue source for the Treasury and could continue to attract policy attention ahead of the autumn Budget, with potential tweaks to gifting rules on the horizon. He added that a broader reform push to IHT could appear alongside wider tax changes as the government seeks to balance fiscal pressures with taxpayers’ expectations.

The forecast for continued growth in IHT receipts comes as overall estate planning becomes more prominent for many households. The current framework offers several methods to reduce IHT exposure, including lifetime gifts that can be exempt from tax if made seven years before death, and annual gift allowances that apply each year. Individuals can also pass on assets to spouses or civil partners without triggering IHT, and there are specific allowances for gifts to children and grandchildren that can help reduce the eventual tax bill. However, these options come with timing considerations, as gifts made within seven years of death can still count toward the estate’s IHT liability, with taper relief applying for gifts made in the last three to seven years of life. Gifts made from income that do not affect living standards can also be tax-free, though beneficiaries should maintain careful records to demonstrate regularity and consistency in spending from income.

In a broader context, the government has signaled that IHT reform could feature in the autumn Budget as policymakers consider ways to address the tax’s reach among the middle class while also ensuring revenue for public services. The prospect of changes to gifting rules, thresholds, and reliefs continues to draw attention from financial advisers and wealth managers who say households should revisit their plans sooner rather than later. For now, the Treasury projects a continued rise in IHT receipts, with the potential for further adjustments to the regime in the coming years as policy priorities shift and the fiscal picture evolves.