Inheritance Tax (IHT) is quickly becoming a larger burden for many families as increasing property values, frozen thresholds, and changes to tax rules drive up receipts.
Figures from HM Revenue & Customs (HMRC) show that IHT receipts reached £6.3 billion in the first three quarters of 2024/25 – an 11 per cent jump compared to the same period last year.
December alone brought in £620 million, a 13 per cent year-on-year increase.
With no changes to the nil-rate band or the residence nil-rate band until at least 2030, combined with an expected rise in taxable estates, now is the time to start planning if you want to reduce your exposure to IHT.
Why are more estates facing higher IHT bills?
The nil-rate band – the amount you can leave tax-free – has been stuck at £325,000 since 2009 and won’t budge until April 2030.
The residence nil-rate band, an additional £175,000 allowance for passing a home to direct descendants, is also frozen until the same date.
Meanwhile, property prices and asset values continue to rise, pushing more estates over these thresholds.
When you also factor in the upcoming tax reliefs, many estates that previously would not have been affected could soon face sizeable tax liabilities.
From April 2026, the rules on Agricultural Property Relief (APR) and Business Property Relief (BPR) will tighten, with only the first £1 million of qualifying assets eligible for 100 per cent relief.
Any value above this will only receive 50 per cent relief, effectively creating a 20 per cent tax on some of these assets.
Additionally, unspent pensions, which have long been IHT-free, will be included in taxable estates from April 2027.
With the Office for Budget Responsibility (OBR) predicting that one in 10 deaths could incur IHT by 2029/30 (up from one in twenty in 2023/24), forward planning has never been more important.
How to minimise your IHT liability
The best way to protect your estate from IHT is to act now. Here are some practical steps to reduce the impact of this tax on your wealth:
Make regular use of gifting allowances
You can gift up to £3,000 each year tax-free, and unused allowances can roll over for one year.
Additionally, small gifts of up to £250 per person are also exempt.
Over time, these gifts can significantly reduce the value of your taxable estate.
Explore exempt transfers
Gifts between spouses or civil partners are entirely exempt from IHT, regardless of their value.
Similarly, charitable donations are tax-free and can reduce the overall IHT rate if they make up at least 10 per cent of your estate.
Consider using trusts
Placing certain assets in a trust can remove them from your taxable estate. However, trusts can be complex and may have their own tax implications, so speak with our team for expert guidance.
Plan your pension strategy carefully
With pensions becoming subject to IHT from 2027, reviewing how and when you withdraw funds could help reduce your estate’s tax liability.
Spreading withdrawals over time or revisiting your retirement plans could be beneficial.
Invest in a life insurance policy
A life insurance policy held in trust can provide funds for your beneficiaries to cover any IHT bill, ensuring they don’t need to sell assets to pay the tax.
Review your Will and estate plan regularly
Estate plans should evolve with your circumstances and changes to tax rules.
Regular reviews help ensure you are making the most of all available reliefs and allowances.
Why early planning matters
Leaving your estate to chance could result in higher taxes and missed opportunities to protect your wealth.
Proactive planning gives you peace of mind, knowing your loved ones will inherit as much of your estate as possible.
For assistance with estate planning and all matters related to IHT, contact our accountancy experts today.
