Inheritance tax receipts have surged to £6.3 billion in just eight months, prompting Britons to plan effectively for potential changes. Between April and December 2024, inheritance tax (IHT) takings rose by £600 million compared to last year, putting receipts on track to surpass the previous tax year’s record of £7.5 billion, according to new figures. The Chancellor announced a series of reforms during November’s Autumn Budget, which may result in more estates being caught in the inheritance tax net in the coming years.
The inheritance tax threshold, frozen until 2030, means IHT receipts are expected to continue rising. Under current rules, estates valued above £325,000 are typically taxed at 40%, a threshold in place since 2009. Additionally, the Budget extended the freeze on IHT thresholds for another two years until 2030.
Agricultural Relief and Business Property Relief have also been reformed, set to take effect from April 2026. The first £1 million of qualifying combined assets will be exempt from inheritance tax, with a 50% relief on assets exceeding that amount, leading to an effective tax rate of 20%. Starting in 2026, qualifying AIM shares will no longer be fully exempt from inheritance tax and will instead be subject to a 20% tax rate if held for at least two years.
From April 2027, inherited pensions might be subject to both inheritance tax and income tax for the recipient, possibly resulting in up to a 67% effective tax rate, pending consultations. Jonathan Halberda, a specialist financial adviser, expects a rise in estates caught in the IHT net by April 2027, when an exemption for money left in pensions on death is closed. Many people who previously did not consider themselves wealthy enough to be affected by IHT may now be impacted.
Inheritance tax planning strategies
Halberda advises speaking to a financial expert to pass on assets as tax-efficiently as possible. Here are four ways to plan effectively for inheritance tax:
- Be a Gift-GiverGiving gifts of money or assets to loved ones is one of the most straightforward ways to reduce inheritance tax liability. Individuals can give gifts of any value to a spouse or partner each year and up to £3,000 to anyone else. Regular payments out of income can also help keep the estate value below the £325,000 tax-free allowance.
However, gifts given less than seven years before one’s death can still be taxed based on the gift’s value and the relationship with the recipient.
- Try a Trust
Placing assets in a trust means they technically no longer belong to the individual and are not counted as part of the estate.
A trust is a legal arrangement where trustees hold assets for the benefit of someone else while allowing control over how, when, and to whom the money is paid out.3. Plan for Your Partner
Certain inheritance tax exemptions are available to married couples and civil partners.
Leaving an entire estate to a spouse or civil partner incurs no inheritance tax, regardless of its value. However, long-term cohabiting couples do not qualify for this exemption, which may prompt them to marry or form a civil partnership.4. Where There’s a Will…
Having an up-to-date will is crucial for ensuring that an estate is distributed according to one’s wishes and taking full advantage of exemptions and allowances. Without a will, there is no control over who inherits or how much inheritance tax will be paid. As inheritance tax reforms loom,
Britons are advised to seek expert financial guidance and explore various planning options to mitigate potential impacts on their estates.
