The UK government has reported record levels of inheritance tax (IHT) receipts, with figures showing a significant rise in tax collected. This increase is largely attributed to policy changes, including the freeze on tax bands and the growing value of estates.

Rise in Inheritance Tax Due to Frozen Thresholds and Growing Wealth

Between April and December 2024, the UK tax authority collected £6.3 billion (€7.5bn) in inheritance tax, a £600 million (€710m) increase from the same period the previous year. The rise in receipts can be traced to several factors, including the government’s decision to freeze IHT tax bands, which have not changed since 2009.

IHT is charged at a rate of 40% on estates valued above £325,000. With this threshold frozen until 2030, more estates are liable to pay as the value of assets increases due to inflation, rising house prices, and strong investment portfolio performances. Carl Green, a financial planning director at wealth manager Evelyn Partners, emphasized that the tax’s steady rise is driven by more estates crossing the exempt thresholds, making IHT an increasingly significant source of revenue for the Treasury.

Pension Pot Taxation and Other Changes Set to Increase IHT Receipts

Future changes are expected to drive IHT receipts even higher. Starting in April 2027, pension pots will be included in taxable estates, a policy shift that will increase the value of estates subject to IHT. Currently, unused pension pots are not taxed when passed down, although other taxes may apply for individuals over 75. The change will affect a large number of families, with some experts expressing concerns about the complications this will introduce.

David Sturrock, senior research economist at the Institute for Fiscal Studies, noted that these changes would significantly raise IHT receipts in the coming years. However, Steven Levin, CEO of Quilter, warned that subjecting pension funds to IHT could create significant challenges for grieving families, suggesting a flat-rate tax on unused pension funds could simplify the process.

Additionally, changes to agricultural property relief have sparked protests. From April 2026, farms valued over £1 million (€1.2m) will be subject to a 20% IHT rate. Business property relief is also being adjusted, with AIM shares now facing IHT liabilities, unlike before.

These modifications to the tax system are expected to lead to an ongoing increase in inheritance tax receipts, further solidifying IHT as a key revenue stream for the UK government.