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

The UK tax authority collected £6.3 billion in inheritance tax (IHT) between April and December 2024. This represents a £600 million increase from the same period the previous year. The rise in receipts results from several factors. Notably, the government froze IHT tax bands. These bands have remained unchanged since 2009.  

IHT is charged at a 40% rate. This applies to estates valued above £325,000. This threshold is frozen until 2030. Consequently, more estates are liable to pay. This is due to asset value increases. Inflation, rising house prices, and strong investment portfolio performances contribute.  

Carl Green, a financial planning director at Evelyn Partners, emphasized the tax’s steady rise. He noted that more estates cross the exempt thresholds. Therefore, IHT becomes an increasingly significant revenue source for the Treasury.

The frozen thresholds create a situation where more families are subject to IHT. This is particularly true as asset values continue to climb. Consequently, careful financial planning is essential. Therefore, individuals should consider strategies to mitigate IHT liabilities.

The increased revenue highlights the impact of fiscal policy on wealth distribution.

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.