HM Revenue and Customs (HMRC) has announced it collected £3.7 billion in Inheritance Tax (IHT) in the first five months of the financial year.
Collecting more than £200 million than at this stage last year, IHT is taking a grip on families, with the Office of Budget Responsibility expecting IHT revenue to hit a record £9.1 billion.
While it isn’t great news for UK taxpayers, it is better news for the Chancellor, Rachel Reeves, as she prepares her Autumn Budget and attempts to balance the Government’s books.
It is very important that you look at protecting your estate from IHT liabilities, especially with a lot of individuals getting caught out by the current measures. Protecting your estate gives you the best chance of avoiding any potential IHT bill.
Why has more Inheritance Tax been collected?
IHT figures for the opening five months of this financial year are up 5.7 per cent compared to last year.
The rise in IHT revenue is related to the continued freeze on the IHT nil-rate band. Frozen at £325,000 since 2021 and expected to stay the same until at least 2030, this is pushing more estates beyond the nil-rate band.
As soon as estates surpass the £325,000 nil-rate band, they become liable to pay an IHT bill, taxed at 40 per cent. With more estates becoming liable, the amount of IHT collected has increased.
Another significant factor is the tight fiscal rules in place. Because Labour and Rachel Reeves must stick to their own rules in place by not raising National Insurance and Income Tax for workers.
Because of this, the Chancellor has been forced to explore other options, and IHT has proven a fruitful avenue and this is evident with the rise in IHT revenue during the first months of this year.
Could Inheritance Tax revenue rise further?
With the Chancellor announcing significant changes to IHT in last year’s Autumn Budget, there is a wide expectation that IHT revenue will continue to climb.
During last year’s Autumn Budget, Rachel Reeves confirmed that from April 2026, there will be changes to the Agricultural Property Relief (APR) and Business Property Relief (BPR), in which the full 100 per cent relief from IHT will be restricted to the first £1 million of combined assets.
This is expected to push more farmers and agricultural business owners closer to the IHT nil-rate band, meaning they face a bill.
Also coming into effect from April 2027 is the classification of unused pension pots and death benefits as part of an individual’s estate. These values will be added to the overall value of an individual’s estate.
This is also likely to push estates beyond the IHT nil-rate band and make more estates liable for a bill.
With this year’s Autumn Budget taking place on 26 November, there could be further changes to IHT to come. While it is unclear at this stage what is to come, the Chancellor could explore this avenue once again in a bid to fix the Government’s financial black hole.
Protecting your estate is essential
With new regulations imminent and the number of estates becoming liable increasing, it’s important you take measures to protect your estate and reduce the risk of facing an IHT bill.
Our expert team of tax advisors can help you assess the value of your estate, explain IHT in detail and give you the tools to make the right decisions to protect your estate and ensure your beneficiaries receive their full inheritance.
