The amount of inheritance tax (IHT) brought in by the Government is £97m higher than last year as more estates were pushed into paying the UK’s “most hated tax”.
IHT receipts reached £780m in April – the first month of the new financial year – HMRC figures have revealed.
Not only does this mark the second highest monthly total ever recorded, but experts think it is going to keep on rising.
Jonathan Halberda, specialist financial adviser at Wesleyan Financial Services, said the increase is “no surprise” given house price inflation and the freeze on IHT thresholds until at least 2030.
He said: “The result is that more families are being caught out by a tax that was originally intended to hit only the very wealthiest.”
IHT is usually charged on an estate – the property, money and possessions of someone who has died – worth more than £325,000.
But this increases to £500,000 if it includes a home being given to children or grandchildren. Married couples can pool their allowances, so this becomes £1m.
Although only around 4 per cent currently pay the tax, the rapid growth in wealth among older individuals means this number is set to rise to over 7 per cent by 2032-33, according to the Institute for Fiscal Studies (IFS).
Nicholas Hyett, investment manager at Wealth Club, said with such a strong start to the 2025-26 tax year this is only going one way – and that is up.
He said: “This is no accident – leaked Government documents made it clear this week that IHT is still seen as a cash cow by some members of the Cabinet.”
The latest Office for Budget Responsibility (OBR) forecast on IHT made at the Spring Statement estimated the tax would raise £9.1bn for the Treasury in 2025-26, with this figure rising to more than £14bn by the end of the decade.
Changes to IHT in the Budget were criticised.
Last week, MPs from the Environment, Food and Rural Affairs Committee urged the Government to delay planned changes to farm IHT by a year.
At present, the Government plans to tax inherited agricultural assets worth more than £1m at a rate of 20 per cent – half the usual rate – from April 2027.
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Calls for a delay will be welcomed by family-run farms, as it would give them more time to seek professional advice and plan ahead to minimise the impact of the changes.
Pension funds are also currently typically excluded from an estate for IHT purposes, but from April 2027 onwards, unused pension death benefits will be included as part of the estate for IHT. This change will mark a significant shift in many people’s tax planning strategies.
Those affected by the various IHT changes will probably have to wait until the autumn Budget later this year for any updates – leaving many UK families uncertain about the future, Jamie Morrison, head of private client at HW Fisher, said.
PAYE income tax and national insurance contributions (NICs) for April 2025 came in at £47.9bn, which is £2.8bn higher than the same period last year.
Income tax thresholds are also frozen, meaning more workers are being dragged into higher rates of tax simply by receiving pay rises that do not necessarily even keep pace with inflation.
Shaun Moore, tax and financial planning expert at Quilter, said: “It’s a highly effective tactic for boosting Treasury receipts without overtly raising tax rates.
“Reeves signalled that the freeze was going to come to an end in 2028 but whether this promise can be kept will depend on the state of the nation’s finances as we approach the autumn Budget this year.
“Further upward pressure will come from the rise in employer NICs next month. The full impact of this policy change will become more evident in the months ahead as the changes bed in.”
How to reduce your IHT bill
Here are some of the ways you can reduce your bill, according to Halberda, the specialist financial adviser.
Managed gift giving: There are limits, but giving gifts of money or assets to loved ones is one of the most straightforward ways to reduce your IHT liability.
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.
Gifts given less than seven years before you due can be taxed, depending on the value and your relationship to the recipient.
Try a trust: Married couple and civil partners enjoy certain IHT exemptions. You can leave your entire estate – including your family home – to your spouse or civil partner with no IHT to pay, even if its value exceeds the £325,000 threshold.
But couples who are living together, no matter how long they have been in a relationship, do not qualify for this exemption.
Where there’s a will: By making a will, and reviewing it regularly, you can take advantage of all the exemptions and allowances that can help you keep your IHT bill as low as possible.
HMRC has been contacted for comment.
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