Inheritance Tax Receipts Top £7 Billion: What Does This Mean for Families?

HMRC has recently published updated Inheritance Tax statistics covering the 2023/24 tax year (Inheritance Tax liabilities statistics: commentary - GOV.UK). Among the figures is the eye-watering amount collected in Inheritance Tax receipts: more than £7 billion. This represents a significant increase from just three years earlier, when annual Inheritance Tax receipts had only recently exceeded £5 billion.

Although only around 4% of UK deaths currently result in an Inheritance Tax charge, more families are being drawn within the scope of the tax as asset values increase and thresholds remain unchanged. With further changes to reliefs and pensions due over the coming years, Inheritance Tax planning and estate planning are becoming increasingly important for families seeking to protect family wealth and reduce future tax liabilities.

Why does this matter?

Although Inheritance Tax receipts are at record levels, it is important to remember that most estates still do not pay Inheritance Tax. HMRC statistics indicate that approximately 4% of UK deaths result in an Inheritance Tax charge.

However, despite this relatively small proportion, both the number of affected estates and the amount of tax collected have increased significantly in recent years. With property and other assets having increased substantially in value over recent years, more estates are at risk of exceeding the available allowances. At the same time, the main Inheritance Tax thresholds have remained frozen.

As a result, reviewing your estate planning arrangements is becoming increasingly important.

Who is most likely to be affected by Inheritance Tax in the UK?

Inheritance Tax is charged on the value of an estate above the available Inheritance Tax-free thresholds and after taking account of applicable exemptions and reliefs. Depending on your circumstances, your estate may benefit from the Nil Rate Band, Residence Nil Rate Band and other available exemptions and reliefs.

You may be at greater risk of an Inheritance Tax liability if:

• You own a home that has increased substantially in value.
• You have accumulated investment portfolios or other significant assets.
• You own a family business or agricultural property.
• You hold substantial pension funds as part of your estate-planning arrangements.
• Your estate may exceed the available Inheritance Tax allowances.

Even where a tax liability is not immediately apparent, future changes to the rules may alter the position.

What will happen to Inheritance Tax receipts in the future?

Inheritance Tax receipts could increase further in the coming years as a number of changes take effect.

• Agricultural and Business Property Relief changes

From April 2026, changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) restrict the extent to which these valuable Inheritance Tax reliefs can be claimed in some circumstances.

For farmers, business owners and their families, this could significantly increase the amount of an estate that is subject to Inheritance Tax.

• Pension changes from 2027

From April 2027, certain unused pension funds and death benefits are due to come within the scope of Inheritance Tax.

This is an important change for anyone using pensions as part of their wider estate-planning strategy. The treatment of pensions for Inheritance Tax purposes should therefore be reviewed as part of an overall estate plan.

• Inheritance Tax allowances remain frozen

The Government has also confirmed that the principal Inheritance Tax thresholds and allowances will remain frozen until at least April 2031.

If asset values increase while allowances remain unchanged, more families may find that their estates fall within the Inheritance Tax regime.

How can I reduce my Inheritance Tax liability?

With the Inheritance Tax rules becoming increasingly important to estate planning, taking advice early can help families understand their potential exposure and consider options for reducing their Inheritance Tax bill.

Depending on your circumstances, possible Inheritance Tax planning strategies may include:

• Making lifetime gifts: Giving away assets during your lifetime can potentially reduce the value of your estate. However, the seven-year rule, the tax treatment of gifts and the gift with reservation of benefit rules need to be considered carefully before making a gift.
• Making gifts from surplus income: The exemption for normal expenditure out of income can allow qualifying regular gifts to be made without becoming subject to Inheritance Tax. Detailed conditions apply, so appropriate records should be maintained.
• Using annual gift exemptions: The £3,000 annual exemption, together with other available gifting exemptions, can form part of a wider estate-planning strategy.
• Considering trusts: Trusts can sometimes provide a useful way of passing assets to future generations while managing how and when beneficiaries receive them. However, trusts have complex tax and legal consequences and are not suitable for everyone.
• Leaving money to charity: Charitable gifts made through a Will can reduce the value of an estate subject to Inheritance Tax. In some circumstances, leaving at least 10% of the relevant estate to charity can also reduce the rate of Inheritance Tax from 40% to 36%.

When should I start Inheritance Tax planning?

The simple answer is: as early as possible.

Many effective planning strategies require time to achieve their intended tax advantages. For example, some gifts may need to be survived for seven years before they fall fully outside the estate for Inheritance Tax purposes. Early planning is particularly important where family businesses, agricultural assets or significant investments are involved. In these situations, succession planning and tax-efficient estate planning can help preserve wealth for future generations.

Taking advice early allows families to consider inheritance tax, capital gains tax, trusts, pension arrangements and succession planning as part of a joined-up strategy.

Key takeaway

The fact that Inheritance Tax receipts have now exceeded £7 billion demonstrates that more families are being affected by the tax than ever before. While only a relatively small proportion of estates currently pay Inheritance Tax, rising asset values, frozen allowances and forthcoming changes to reliefs and pensions mean that the tax is becoming increasingly relevant to a wider range of families.

Reviewing your Inheritance Tax planning and estate planning arrangements now may provide more opportunities than waiting until later in life. Early action can improve opportunities for family wealth protection, reduce potential Inheritance Tax liabilities, and ensure assets pass to future generations in the most tax-efficient way possible.

How Tozers can help

At Tozers, we understand the complexities of Inheritance Tax planning and the financial and emotional challenges it can present. Our experienced team can help you:

• Understand your potential exposure to Inheritance Tax.
• Review your existing Wills and broader estate planning arrangements.
• Make full use of available reliefs, exemptions, the Nil Rate Band and Residence Nil Rate Band.
• Develop a tailored Inheritance Tax planning strategy.
• Advise on trusts, gifting and succession planning opportunities.
• Protect family wealth across generations.
• Ensure your estate is structured as tax-efficiently as possible.

Whether you are reviewing your own affairs or planning for future generations, our specialists can provide tailored advice designed around your family's circumstances and objectives.

Contact our legal experts