UK inheritance tax (IHT) receipts surged to £1.48 billion in recent months—a 7% (£98m) increase from last year—as frozen tax thresholds drag more families into paying the so-called “most-hated tax.”
Why Is IHT Rising?
🔹 Frozen thresholds until 2030 – The nil-rate band (£325,000) and residence nil-rate band (£500,000) remain unchanged despite rising property and asset values.
🔹 Pensions to be included from 2027 – Chancellor Rachel Reeves announced pensions will be subject to IHT, widening the tax net.
🔹 Soaring asset prices – Homes, investments, and savings push more estates over IHT limits.
Key IHT Facts
✔ 40% tax rate on estates over £325,000 (or £500,000 if leaving a home to children/grandchildren).
✔ Married couples can combine allowances, protecting up to £1 million.
✔ Only 4% currently pay IHT, but the Institute for Fiscal Studies (IFS) predicts this will rise to 7% by 2033.
Who’s Most Affected?
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Middle-class families – Rising home prices push more into IHT territory.
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Business owners – Fear having to sell family firms to pay tax bills.
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Pension holders – From 2027, pensions will be included in IHT calculations.
Expert Warnings
Jonathan Halberda (Wesleyan Financial Services):
“This is no longer just a tax for the wealthy. More families are being caught simply because their homes and assets have grown in value.”
Laura Hayward (S&W):
“Frozen thresholds mean even modest inflation drags more people into IHT. The government may hike taxes further in the next Budget.”
How Can You Reduce IHT?
✅ Lifetime gifting – Use “normal expenditure out of surplus income” rules.
✅ Seven-year rule – Gifts given 7+ years before death escape IHT.
✅ Trusts & exemptions – Seek financial advice to protect wealth.
Future Risks
⚠ Government may extend the 7-year gifting rule to 10 years – making it harder to pass on wealth tax-free.
⚠ Further IHT reforms expected – Speculation grows ahead of the autumn Budget.
Broader Tax Squeeze
📌 Income tax & NI receipts up £6.1bn – Frozen thresholds mean pay rises push workers into higher tax brackets.
📌 Employer NI hikes – Rate increased from 13.8% to 15%, costing businesses £8.6bn more annually.
The Bottom Line
With IHT at record highs and pensions soon included, families must plan ahead to avoid hefty tax bills. Financial advice and early gifting strategies are now crucial.
