A recent article by The Independent has spotlighted a concerning rise in Inheritance Tax (IHT) receipts, with HMRC collecting £780 million in a single month—marking the second-highest monthly figure on record. This increase is largely attributed to frozen IHT thresholds and impending changes to the tax treatment of pensions, which are set to be included in taxable estates from 2027.
Stagnant Thresholds and Rising Asset Values
Despite significant increases in property and asset values over the past decade, the IHT nil-rate band has remained frozen at £325,000 since 2009. This has resulted in more estates being drawn into the tax net, often unintentionally, especially those involving family homes in high-value areas.
Upcoming Changes to Pension Taxation
From 2027, the government plans to include defined contribution pensions in taxable estates, further expanding the IHT scope. This change will affect many families who have relied on pension pots as a tax-efficient way to pass wealth to loved ones.
Strategies to Reduce IHT Liability
Given this shifting landscape, it is more important than ever for families to plan ahead. Several strategies can help reduce IHT exposure, including:
- Using the £3,000 annual gifting exemption.
- Making regular gifts from surplus income.
- Transferring assets early to take advantage of the seven-year rule and potential taper relief.
- Considering the use of trusts and charitable donations as part of a broader estate plan.
How Tozers can help
At Tozers, we understand the complexities of inheritance planning and the emotional and financial challenges it can pose. Our experienced team offers tailored advice to help you:
- Navigate evolving tax rules with confidence.
- Protect family wealth across generations.
- Ensure your estate is structured as tax-efficiently as possible.
