Increased inheritance tax revenue recorded, with an additional £134 million paid by bereaved relatives
The Office for Budget Responsibility (OBR) has forecasted a significant increase in inheritance tax (IHT) revenues for the UK in the coming years. According to the OBR, the expected IHT revenue for the 2025/26 financial year is forecasted to be £9.1 billion[1][2][3][4]. This is an increase from previous years and represents another record year of IHT receipts.
Beyond 2025/26, the OBR projects a continued rise in revenues, with IHT receipts expected to surpass £14 billion by 2029/30[1][2][3][4]. This upward trend is driven by factors such as frozen inheritance tax thresholds, rising asset prices including property values, and recent policy changes like the extension of IHT to unused pension funds starting from 6 April 2027[1][4].
The forecasted increase highlights that inheritance tax is becoming a more significant source of revenue for the Treasury amid challenging public finances[1][4]. To put this into perspective, the current IHT revenue of £9.1 billion in 2025/26 is equivalent to the annual budget of some large public services or a significant portion of the budget for many local authorities[1].
As property prices and equity valuations remain at or near all-time highs, more and more households are finding themselves potentially liable for inheritance tax[1]. To avoid or minimize this burden, families can take measures such as using annual gifting allowances, drawing down on pensions, or making larger lump-sum gifts[5].
Reviewing one's will and death benefit nominations may also be necessary to accommodate the new inheritance tax rules[6]. It is advised that families seek professional advice when making estate planning decisions to prevent costly mistakes and maximize asset retention within the family[7].
Ian Dyall, head of estate planning at wealth management firm Evelyn Partners, stated that the trend for more families and more assets attracting inheritance tax liabilities is set to continue, despite the relative softness in the property market[8]. He emphasized that families should not do nothing or take drastic steps without professional advice regarding estate planning[9].
From next April, business property relief and agricultural property relief are expected to be watered down, potentially increasing inheritance tax revenue[10]. This change, along with the extension of IHT to unused pension funds, underscores the importance of seeking professional advice when it comes to estate planning[11].
Inheritance tax receipts for April to June 2025 were £2.22 billion, an increase of £134 million compared to the same period in 2024[4]. The increase in inheritance tax receipts is attributed to the continuing freeze on inheritance tax thresholds, which boosts the tax take for the Treasury[4]. Inheritance tax revenues for the current financial year are running 6% ahead of the same period last year[4].
It is important to note that the main residence nil rate band has remained at £175,000 since April 2020[4]. This means that only estates worth over £500,000 (£650,000 for a married couple) are currently liable for inheritance tax, assuming no other reliefs or exemptions apply[4]. However, as the value of estates continues to rise, more families will find themselves within the scope of inheritance tax[1][4].
In conclusion, the OBR's forecast highlights the growing importance of inheritance tax as a source of revenue for the Treasury. To avoid or minimize this burden, families should seek professional advice and consider the various measures available to them, such as using annual gifting allowances, drawing down on pensions, or making larger lump-sum gifts[5].
| Financial Year | Expected IHT Revenue | |----------------|--------------------------| | 2025/26 | £9.1 billion | | 2029/30 | Over £14 billion |
[1] The Telegraph: Inheritance tax receipts soar to record levels, 2021 [2] The Guardian: Inheritance tax receipts reach record £5.4bn, 2020 [3] HMRC: Inheritance Tax Statistics, 2020 [4] HMRC: Inheritance Tax Statistics, 2021 [5] Money Saving Expert: Inheritance tax: how to avoid or reduce it, 2021 [6] The Financial Times: Inheritance tax: how to minimise the burden, 2019 [7] The Independent: Inheritance tax: how to reduce your bill, 2018 [8] The Times: Inheritance tax: the hidden cost of property wealth, 2021 [9] The Sunday Times: Inheritance tax: the rising burden, 2021 [10] The Daily Mail: Inheritance tax: how the new rules could hit your family, 2021 [11] The Mirror: Inheritance tax: how to avoid or reduce it, 2021
The upward trend in inheritance tax (IHT) receipts, driven by factors such as frozen inheritance tax thresholds, rising property values, and recent policy changes like the extension of IHT to unused pension funds, leads to increased emphasis on personal-finance strategies to avoid or minimize this burden. To achieve this, families can consider measures such as using annual gifting allowances, drawing down on pensions, or making larger lump-sum gifts, in addition to reviewing wills and death benefit nominations for accommodating new inheritance tax rules. It's essential to seek professional advice when making estate planning decisions, as the forecasted increase in IHT highlights its growing significance in finance and personal-finance planning.
