Inheritance Tax (IHT) is claiming a growing share of family wealth. In the 2024/25 tax year, HMRC collected a record £8.2 billion in IHT, and that figure is expected to rise to nearly £14 billion by 2030. The steady rise in receipts shows just how many Estates are now being drawn into the tax net.
For many, IHT feels like a problem only for the very wealthy, but that’s no longer the case. Rising property values, particularly in London and the South East, combined with frozen tax thresholds, mean that an increasing number of ordinary families are being caught out. At a time when passing on wealth efficiently to the next generation matters more than ever, now is the moment to take a serious look at Estate planning.
Why are more people paying Inheritance Tax?
The rise in IHT receipts is largely due to the freeze on tax thresholds, which the government has kept at the same level since 2009. The nil-rate band – the amount you can pass on tax-free – has been stuck at £325,000 for over 15 years, while house prices and asset values have continued to climb.
This means that more estates now exceed the threshold, even if they don’t appear particularly wealthy on the surface. A modest family home, some savings, and a pension pot can quickly push an Estate over the limit, and anything above the nil-rate band could face a 40% tax bill.
What can you do to reduce the impact of Inheritance Tax?
Good Estate planning can significantly reduce, or even eliminate, an IHT bill. Estate planning is no longer just for the wealthy, it is essential for nearly everyone who wants to protect their family’s financial future. More than just a tax-saving measure, Estate planning gives you control over how your assets are distributed, ensure your wishes are respected, and helps to avoid delays and family disputes.
Some commonly used estate planning strategies include:
- Making use of the annual gift allowance: Everyone has an annual gift allowance of £3,000, which can be given away each year without reducing your nil-rate band. Larger gifts can also be made, provided you survive the seven years after making them.
- Considering trusts: While they can be complex, trusts offer a way to pass assets to future generations while potentially reducing IHT exposure.
- Using the residence nil-rate band: If you’re passing your main home to direct descendants, an additional tax-free allowance of £175,000 may be available on top of the standard £325,000.
- Updating your Will and reviewing your Estate plan regularly: Reviewing your Will regularly ensures it reflects your current circumstances and helps keep your Estate plan up to date and effective.
- Considering your pensions: From April 2027, the proposed inclusion of private pensions within the IHT net could significantly impact estate planning strategies, especially for individuals with substantial pension pots. Traditionally, pensions have been a highly tax-efficient way to pass on wealth, often outside the scope of IHT but it is now worthwhile seeking advice to potentially draw down earlier, gift pension withdrawals, alternatively invest in IHT efficient assets, use trusts, and review nominations.
Don’t leave Estate planning too late
One of the biggest mistakes people make is waiting too long to start planning. By the time an Estate is being settled, the options are limited. Taking action early can make a significant difference to the amount of tax paid and the value passed on to loved ones, especially due to the ‘seven year clock’ for gifting.
As IHT receipts continue to rise and future thresholds remain uncertain, there has never been a better time to review your Estate plans.
How we can help
Contact our expert Private Wealth and Inheritance team today to discuss how we can help you put the right plans in place – giving you peace of mind and maximising what you leave behind.
