Inheritance Tax Receipts Hit Record Highs: Why You Should Plan Now

In recent months, the UK has witnessed a significant surge in inheritance tax (IHT) receipts. The latest figures from HM Revenue and Customs reveal a new record. Between April 2024 and February 2025, IHT receipts have reached £7.6 billion, which is an increase of £0.8 billion from the same period last year.

The Driving Factors Behind the Increase

Several key factors are contributing to this rise. One of the primary drivers is the freeze on tax thresholds, which will remain in place until at least 2030. This freeze, coupled with continued house price growth, has drawn more families into the IHT bracket. As property values climb due to inflation, more estates now fall within the scope of IHT, despite the tax bands remaining unchanged.

Impact of Rising Wealth and Frozen Thresholds

Currently, the IHT system exempts estates valued below £325,000. However, as wealth continues to grow, particularly among older individuals, more estates are crossing this threshold. This trend is further driven by the strong performance of investment portfolios, leading to an ongoing increase in IHT receipts flowing into the Treasury.

Upcoming Changes: Pensions and IHT

A significant policy change will take effect from April 2027. At that point, unused pension pots will become subject to IHT. This is expected to further increase tax receipts, as pension funds that were previously exempt will be included in taxable estates. This change could also result in administrative burdens for bereaved families, who will have to manage pension valuations and additional paperwork alongside other estate-related matters.

Strategies to Mitigate IHT

Given the rising IHT liabilities and changing regulations, it is crucial to plan strategically. Below are some key strategies recommended by financial advisers:

Gifting Allowances

Making use of gifting allowances can be an effective way to reduce future IHT bills. The £3,000 annual exemption enables individuals to give away this amount each year without it being added to their estate. For those with larger potential liabilities, the ‘gifting out of surplus income’ rule may also be beneficial. This requires properly documented evidence that the gift does not affect the donor’s standard of living.

AIM ISAs

Investing in AIM (Alternative Investment Market) shares through Individual Savings Accounts (ISAs) can offer potential IHT benefits. AIM shares that are held for at least two years currently qualify for 100 percent relief from IHT. However, from April 2026, this relief will be halved to 50 percent, resulting in an effective IHT rate of 20 percent. This change highlights the importance of reviewing investment strategies now.

Agricultural and Business Relief

Upcoming reforms to agricultural property relief and business property relief will also impact estate planning. From April 2026, farms with a valuation of more than £1 million will be liable to 20 percent IHT. In addition, changes to business property relief may affect investors with holdings in smaller and more speculative AIM-listed companies.

The Importance of Up-to-Date Valuations

With the tax landscape becoming more complex, it is essential to have current valuations of your estate. Property assessments and investment reviews are important tools to determine potential IHT exposure. Regularly updating these valuations can support more informed decisions about gifting, investing, and overall estate planning.

Conclusion

The current record level of IHT receipts reflects the growing importance of proactive financial planning. As tax rules continue to evolve, individuals should take steps to minimise their potential liabilities. Seeking advice from a qualified financial planner is a wise move to ensure your estate is managed efficiently and in line with changing regulations.

At Cutts and Co Accountancy, we are dedicated to helping you stay ahead in a shifting financial and tax environment. Whether you are exploring gifting strategies, reviewing AIM ISA investments, or preparing for changes to pensions and property relief, our experienced team is ready to guide you.