Inheritance tax receipts hit record £8.2bn – five ways to cut bill (Image: Getty)
Inheritance tax takings soared to a new high in the year to March as rising asset values and frozen thresholds dragged more estates into the net. HM Revenue and Customs (HMRC) raked in £8.2billion between April 2024 and March 2025, an increase of £800million (10.8%) compared to the same period the year before.
Experts warn the levy is no longer a tax for the rich. The Institute of Fiscal Studies (IFS) predicts that by 2029/30, the share of deaths liable for inheritance tax will reach its highest level in over 50 years. Paul Barham, partner at Forvis Mazars, said: “A combination of frozen thresholds, as well as changes to Business and, controversially, Agricultural Property Relief, are putting more pressure on an increasing proportion of families. And to add to the cauldron, pensions are planned to be included within estates from 2027. Historically, this tax has made up a small proportion of the total tax haul, but perceptions of IHT being a preserve of the wealthy are set to change.”
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Rising asset values and frozen thresholds are dragging more estates into the inheritance tax net. (Image: Getty)
Under current inheritance tax rules, estates valued above £325,000 are typically taxed at 40%. This is referred to as the “nil-rate” threshold, and it has been frozen since 2009 despite soaring house prices and inflation. During last year’s Autumn Budget, Chancellor Rachel Reeves announced an extension to the freeze on IHT thresholds until 2030.
She also announced reforms to Agricultural Relief and Business Property Relief, which will take effect in April 2026. The first £1million of qualifying combined assets will be exempt from inheritance tax. Assets exceeding £1million will be taxed at 20%. Previously, assets that qualified for this relief were fully exempt from inheritance tax.
Thirdly, qualifying AIM shares will no longer be fully exempt from inheritance tax. Starting in 2026, they will be subject to a 20% inheritance tax rate if held for at least two years. Finally, from April 6, 2027, inherited pensions may become subject to both inheritance tax and income tax for the recipient. Pending consultation, this could result in an effective tax rate of up to 67%.
However, reducing the tax burden is possible, according to Mr Barham. He said: “Considered planning is required for this, especially given the rumours of more changes to come, which could potentially make ‘gifting’ harder. Making use of allowances while you are able to is essential, as well as knowing the rules around gifting and setting up trusts.”
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Gifting rules
Gifts of any size fall out of people’s estates after seven years. Mr Barham said: “You can make a gift of any amount, but if you pass away within seven years of making that gift, then some or all of that gift could be classed as part of your estate for IHT calculations.”
Anyone can make a gift of up to £3,000 a year to another person using their annual exemption. Married couples or civil partners can gift up to £6,000 between them, or even £12,000 if they haven’t used their £3,000 allowance in the previous year.
In addition, small gifts of up to £250 and any gifts from “excess income” can be made to anyone free of inheritance tax.
Consider Trusts or a Family Investment Company
Those who don’t wish to make outright gifts can use a structure such as a Trust or Family Investment Company.
Mr Barham explained: “This can remove wealth (and future growth) from your estate while still enabling you to have control over the assets, as well as offering an element of asset protection in the event of a failed business or relationship breakdown.
“There are lots of different types of trust that each come with their own tax rules so it’s best to consult a specialist to ensure you choose the one that best suits your and your beneficiaries’ future needs.”
Pensions as IHT tools
Pensions can be a valuable tool when passing down wealth because at present, they sit outside your estate for IHT purposes. As of April 2023, the lifetime allowance was also removed, so there is no limit on how much you can save over your lifetime.
Mr Barham said: “If you have assets inside and out of a pension plan, you’ll want to consider when to draw down from your pension and whether also to consider using non-pension assets to meet the full cost of everyday life.”
However, as pensions may no longer remain outside the scope of IHT from April 2027, Mr Barham suggested those who had planned to use their pension to pass on wealth to speak with an adviser.
Make a will
According to Mr Barham, a will is one of the most “overlooked” financial documents and is the most essential thing you can do to ensure your estate goes to who you want and that your wishes are carried out.
He said: “Without a will, your estate will be distributed under the intestacy rules. This can mean that some of your estate could be subject to IHT that could have been avoided with legitimate will planning.”
Seek some help
Inheritance planning is notoriously complex, but there are advantages to starting earlier than you think is necessary.
Mr Barham said: “Seek the support of an adviser that you trust and one that you think will have your best interests at heart.
“While no one really wants to think about the need to pass on wealth, it can be of great benefit to your loved ones to get plans in place early.”
