Treasury pockets £7bn inheritance tax but Rachel Reeves could be out for more

Inheritance Tax receipts for April 2024 to January 2025 are £7.0 billion, £0.7 billion more than last year, HM Revenue & Customs revealed today.

Some experts are warning that despite the record tax take, the Chancellor of the Exchequer may be considering removing the ability to gift money tax-free in the seven years before someone dies.

Rising property prices and inflation, combined with a freezing of the IHT limits of £325,000 for assets and £175,000 for inherited property, means more and more families are being dragged into paying the tax.

Shaun Moore, tax and financial planning expert at Quilter, said: “Rising house prices, particularly in the South East, mean many people that don’t consider themselves to be wealthy will now find themselves above the threshold and facing a 40% tax bill.”

Moore said: “This relentless rise in inheritance tax receipts is baked into Government policy.”

Moore said farmers and business owners are also feeling the pressure.

“The upcoming reforms to Agricultural Property Relief and Business Relief could force more family farms and small enterprises into difficult decisions about their futures. A tax once aimed at the wealthiest estates is now creeping further into the middle class, and with unspent pensions set to be taxed from April 2027, the government’s IHT windfall is only set to grow.

Ian Dyall, Head of Estate Planning at wealth management firm Evelyn Partners, said that even though the inflation-led boost to the Treasury coffers will already be accounted for in the fiscal forecasts the chancellor may be considering further ways to tax cash and assets after people die.

“Given the wide-ranging pressures on the public finances, with geo-political upheaval now prompting calls for greater defence spending, it might not be long before Rachel Reeves is again forced to seek new ways of boosting tax revenues. With the self-imposed limits on how she can do this, IHT remains one of the few ways the Chancellor can wriggle out of the fiscal strait-jacket.

‘Pension pots will not become liable to IHT until April 2027 and the combined business and agricultural property relief exemption will not be cut to £1m until April 2026. While it seems unlikely further tax changes will be announced at the spending review in late March, the next autumn Budget could well stir speculation if the Chancellor has to cast around for a few extra billion to balance the books.

He warned that the Treasury could try to extract a bit more from IHT by closing off some of the options that families have been using to reduce their IHT liability, such as removing or reducing the seven-year exemption on gifts.

Moore said: “Inheritance tax remains one of the most resented taxes in the UK, yet the government is changing policy so more people than ever will pay it. Without reform, families will continue to find themselves hit with unexpected tax bills on what they hoped to pass down.

CGT receipts surge

Capital Gains Tax receipts reached £14.56 billion, similar to the £14.59 billion collected in the same period last year. CGT receipts have increased by 271% over the past decade, from £3.91 billion in 2013-14 to £14.49 billion in 2023-24. This dramatic rise highlights how CGT has become an increasingly lucrative source of revenue for the Treasury, with successive governments gradually pulling more taxpayers into its net through lower exemptions and higher rates.

PAYE and NICs continue to boost Treasury coffers

HMRC’s latest figures reveal that PAYE income tax and National Insurance contributions (NICs) receipts totalled £349.1 billion from April to January 2025, an increase of £10.3 billion compared to the same period last year.

Employer NICs are set to rise from 13.8% to 15% in April 2025, and the threshold at which employers start paying NICs will drop from £9,100 to £5,000. These changes will increase costs for businesses and potentially affect wages and hiring decisions.

Stephen Lowe, group communications director at retirement specialist Just Group, commented: “The latest IHT receipts data for January will be a welcome boost for the Treasury, with the 2024/25 tax year looking almost sure to scoop another all-time record level of IHT revenues. Frozen thresholds and rising asset prices continue to be the main drivers of the current record tax take.

“The Chancellor’s Autumn Budget revisions to the IHT regime resulted in the OBR predicting that approximately one in 10 deaths will incur IHT by 2029-30, double the proportion in 2023-24, meaning that within a decade roughly twice as many estates will be hit by IHT.

 “We would encourage people to regularly assess the value of their estate, including up-to-date property valuations, to understand whether they could be affected by IHT. Estate planning can be complex, and seeking professional financial advice can help individuals navigate the rules, mitigate potential liabilities, and ensure they pass on as much wealth as possible to their loved ones.”

The Treasury has been asked to comment.