HM Revenue and Customs said Wednesday it collected £936 million in inheritance tax in September, the largest single month since records began. Cumulatively, inheritance tax has brought in £4.7 billion this financial year, £300 million above the take over the same period last year.
Receipts are likely to trend higher in the years ahead because allowances are frozen, and because higher asset prices and more money being passed down are pulling more estates into scope, the tax authority said.
Right now, tax generally kicks in on bequests above £325,000. For the majority of cases, leaving the main home to direct descendants raises the effective threshold to more than £500,000. If an allowance isn't fully used, the remainder may be moved to a spouse or civil partner, so together some couples can pass on as much as £1 million without tax. For estates exceeding £2 million, the residence nil-rate band tapers down.
At last year's budget, former UK Chancellor Rachel Reeves said these inheritance tax thresholds will stay unchanged until 2031, and noted the nil-rate band has not moved since 2009. According to HMRC, in 2023-24, inheritance tax was paid by 4.7% of UK estates.
The Office for Budget Responsibility projects £9.5 billion in inheritance tax receipts this financial year, and close to £8.5 billion in 2025-26.
When policy and taxes affect long term planning, stay informed with the free Market Briefs for quick context
Frozen thresholds are widening the net. According to Ian Dyall, who heads estate planning at Evelyn Partners, they "continue to bring more families into scope of the tax, while many estates that were already facing an inheritance-tax liability are seeing larger proportions of their wealth exposed to the charge." He added that "Annual growth in property values and investments can significantly increase the eventual tax bill when thresholds remain unchanged for such a long time."
On the forecast track, Simon Martin, who leads UK technical services at Utmost, said "growth so far is running behind the pace the OBR expected," but "this year could still be another record" for receipts.
Planning tools still matter. Sarah Coles, who heads personal finance at AJ Bell, highlighted an annual £3,000 gift allowance that "comes out of your estate immediately for inheritance-tax purposes," and can be carried forward one year. She noted that cash gifts fall outside the estate after seven years, and that "You can also give gifts from surplus income, so once you meet your usual living expenses, you can give away income that's left over if you do it on a regular basis."
From April, unspent defined-contribution pensions will be included for inheritance tax. Separately, HMRC says 4.7% of estates paid the tax in 2023-24.
The politics are shifting too. Last month, Conservative Party leader Kemi Badenoch pledged to halve the number paying inheritance tax if her party wins the next general election, proposing to exempt family homes and increase by £1 million the tax-free threshold for other assets.
The bottom line: frozen thresholds plus rising asset values mean more wealth could be exposed to inheritance tax over time, which can change how much ultimately reaches your portfolio.
Because small changes can matter to personal finances, get concise daily updates in the free Market Briefs newsletter
