Inheritance tax (IHT) takings soared to £6.8billion in the eight months from April to December 2024, new figures show.
This marks a £600million increase compared to the same period last year, putting receipts on track to beat the HM Revenue and Customs (HMRC) record of £7.5billion in the previous tax year.
Chancellor Rachel Reeves announced a raft of reforms during November’s Autumn Budget, which could set even more estates up to be dragged into the inheritance tax net in the years to come.
Jonathan Halberda, specialist financial adviser at Wesleyan Financial Services, said: “Given that the inheritance tax threshold has been frozen until 2030, it’s almost inevitable that IHT receipts will continue to rise every month.”
How are inheritance tax rules changing?
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 the Budget, Ms Reeves announced an extension to the freeze on IHT thresholds for a further two years until 2030.
Agricultural Relief and Business Property Relief have also been reformed, with changes set to take effect from April 2026. The first £1million of qualifying combined assets will be exempt from inheritance tax. For assets exceeding £1million, a 50% relief will apply, resulting in an effective tax rate of 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. This could result in an effective tax rate of up to 67%, pending consultation.
Mr Halberda said: “We can expect a jump in the number of estates that will be caught in the IHT net in April 2027, when an IHT exemption for money left in pensions on death is closed.
“This is something that will also pull more people who might not have thought of themselves as well-off enough to be hit by IHT into the tax net.”
He added: “If you haven’t already, now is the time to speak to an expert financial adviser and formulate a plan to pass on your assets as tax efficiently as possible. There are a whole range of options available.”
Be a gift-giver
Giving gifts of money or assets to loved ones is one of the “most straightforward ways” to reduce inheritance tax liability, according to Mr Halberda.
He said: “In general, every year you are allowed to give gifts of any value to a spouse or partner, or gifts of up to £3,000 to anyone else.
“You can also make regular payments out of your income, which can help stop the value of your estate exceeding the £325,000 tax-free allowance.”
However, he noted: “But there are limits. Gifts given less than seven years before you die can be taxed, depending on the gift’s value and your relationship to the recipient.”
Try a trust
Another way to reduce inheritance tax liability is to put some assets in a trust. Mr Halberda said: “This means they technically don’t belong to you anymore, so they aren’t counted as part of your estate.
“A trust is a legal arrangement where assets are held by a trustee or group of trustees for the benefit of someone else, but you can still control how, when and to whom the money is paid out.”
Plan for your partner
Certain inheritance tax exemptions are available to married couples and civil partners, and using them can save a significant amount of money.
Mr Halberda said: “You can leave your entire estate – including the family home – to your spouse or civil partner with no inheritance tax to pay, even if its value exceeds the £325,000 threshold.”
However, he noted: “Couples who are living together, no matter how long they have been in a relationship, don’t qualify for this exemption. As a result, some couples’ inheritance planning may include getting married or forming a civil partnership.”
Where there’s a will…
Finally, Mr Halberda said having an up-to-date will is one of the “most effective” ways to ensure an estate is distributed according to a person’s wishes.
He said: “Without a will, you have no say over who inherits what or how much inheritance tax may have to be paid.
“By making a will and reviewing it regularly, you can take advantage of all the exemptions and allowances that can help you keep your inheritance tax bill as low as possible.”
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