Inheritance tax receipts show new year-on-year increase

“The inheritance tax take for the Treasury has shown another year-on-year increase. With the nil rate band set to remain frozen until at least 2030 and already-announced reforms due to affect how inheritance tax is charged, we can expect to see this trend continuing. This will mean even more families being brought into scope for the tax and could leave many worrying how they are going to settle their bills when a loved one passes away.

“In addition to frozen allowances, significant changes are on the way from April 2026 for business and agricultural property relief which will leave many families in a difficult position settling inheritance tax bills when a family business is passed on to the next generation. Combined with this, from April 2027, pensions will be brought into scope for inheritance tax purposes. If this pushes estates above £2 million, it can take someone from having a low inheritance tax exposure to a high one. This is because the taper for the residence nil rate band kicks in for estates over £2 million, which means taxpayers face the double whammy of inheritance tax on their pensions while also losing some or all their residence nil rate band. 

“Speculation is growing that the Chancellor will need to raise taxes at the Autumn Budget to meet spending commitments and this could lead to further changes being made to the charging of inheritance tax. This backdrop is bringing considerable uncertainty for many and should be a prompt for families to look at their tax planning position before any further possible changes are announced. 

“We are currently having lots of conversations with clients who want to know what they can do to mitigate against the announced inheritance tax changes, plus any further updates that may come at the Autumn Budget. Many are looking at how they can effectively make gifts to family members or invest tax-efficiently to help reduce or eliminate inheritance tax bills. Gifts you make to other individuals are generally not subject to inheritance tax unless you die within seven years. There is also an annual gift allowance of up to £3,000 per tax year, and this will not be subject to inheritance tax even if you do die within seven years. To ensure that gifts are used in a responsible way, families often consider setting up trusts which provide an effective tool for tax efficiently passing on assets to the next generation in a controlled way.”