The latest figures from HMRC show a sharp rise in inheritance tax (IHT) receipts, reflecting a combination of frozen thresholds, rising asset values, and increased intergenerational wealth transfers. With upcoming changes to key reliefs and the treatment of pensions, proactive estate planning is becoming essential for families looking to protect their wealth.
A record year for inheritance tax receipts
The amount of inheritance tax (IHT) paid in tax year 2022/23 was £6.7 billion. This was £0.71 billion, or 12%, higher than that paid in the year before, 2021/22. Breaking down the figure, 4.62%, or just under 1 in 20, UK deaths resulted in an IHT charge. This is a noticeable rise – just a few years ago, that figure hovered closer to 3%. The impact of fiscal drag is now clearly being felt in a growing number of estates. And of course because of the exemption for transfers between spouses/civil partners, as well as a number of reliefs, the number of estates affected by IHT without it being paid is probably at least double the stated 5%.
Why is more tax being paid?
HMRC explain this here as "likely due to a combination of higher volumes of wealth transfers following recent IHT-liable deaths, recent rises in asset values, and the Government’s decisions to maintain the IHT tax free thresholds at their 2020 to 2021 levels up to and including 2029 to 2030". Of course, the main IHT tax free threshold, the nil rate band, has in fact been frozen since 2009.) The fiscal drag effect of freezing allowances as assets continue to go up in value, and the growing amount of transfers of wealth from one generation to the next, are both highlighted here. This combination of rising values and frozen thresholds means that without action, families who never expected to face IHT could be facing substantial tax bills, often forcing the sale of assets to pay for them.
Changes coming for farms and businesses
Post 6 April 2026, farms and businesses currently paying potentially a 0% rate of IHT will pay 0% IHT only on the first £1m and will pay 20% IHT on the rest. This £1m allowance is not doubled up between spouses, without lifetime or will planning or both. We have written on this before, here. This could have a significant impact on succession planning for family businesses and rural estates, many of whom have traditionally relied on 100% relief to keep assets in the family.
Reliefs under pressure
In the same HMRC commentary as above, they comment on the amount of reliefs given for farms and other businesses being £5.28 billion in the tax year 2022 to 2023. This had risen by 19% on the previous year. One can see that with the reliefs being restricted and if values continue to rise, substantial extra tax may be paid. It’s a clear signal that these reliefs are in the spotlight – and any future government could tighten them further.
Pensions to be taxed from 2027
Post 6 April 2027, pensions will also be included in the estate for IHT, potentially moving those assets from 0% IHT to 40% IHT. We have written on this before, here. This shift fundamentally changes the way pensions are viewed in estate planning – once a valuable shelter from IHT, they will now need to be actively managed as part of the wider estate.
Planning ahead: what you can do now
Action points here are will planning, lifetime gifting, pension planning, and considering funding of the IHT bill to ease cashflow for your heirs. Reviewing these with your solicitor and financial adviser now – rather than waiting – can help you lock in protections and reduce your exposure to these upcoming changes.
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