The government raised a record amount from inheritance tax (IHT) in the last tax year — even before changes that will include pensions and farmland.
HM Revenue & Customs (HMRC) has reported £8.2 billion in IHT receipts for 2024-25, up from £7.5 billion the year before and £3.8 billion in 2014-15.
The £325,000 tax-free allowance on estates has been frozen since 2009, while an additional £175,000 residence allowance for those passing on their main home to children or grandchildren has been unchanged since its introduction in 2017.
Property makes up about 38 per cent of the average taxpaying estate, according to the estate agency Savills. Stocks and shares account for 29 per cent and cash 18 per cent. About 4 per cent of UK deaths are liable for the death tax, HMRC said.
Allowances will continue to be frozen until at least 2030 and the government’s Office for Budget Responsibility estimates that IHT receipts will be about £13.9 billion by the final tax year of the decade.
The financial adviser Jonathan Halberda says making pensions liable to IHT will add more complexity to the system
Jonathan Halberda Wesleyan Financial Services, said: “With an increasing number of families being pulled into the scope of inheritance tax, the latest rise in receipts comes as little surprise. Each month we’re seeing the impact of frozen thresholds that no longer reflect current asset values, alongside an increasingly complex system.
“Many who wouldn’t have faced a tax bill just a few years ago are now being caught out, while others don’t realise their estate is at risk until it’s too late.”
IHT receipts are set to be boosted by the Treasury’s decision to reform agricultural property relief from April next year and to make pension pots liable for IHT from 2027. From April 6 next year, IHT relief on farmland and business property will be restricted to £1 million, with any farmland and business property value above this taxed at 20 per cent.
In February farmers protested against IHT changes by taking tractors to Westminster
JACK HILL FOR THE TIMES
The government says that this will make the system fairer, help to fund public services and stop wealthier people from buying up farmland as a way of minimising IHT liability. Farmers have protested, claming that it will put family businesses at risk because farms may need to be sold by inheritors to pay tax bills.
The change is estimated to raise an additional £520 million a year in IHT by 2029-30. Including pension pots in taxable estates will raise £1.46 billion a year, according to the Treasury’s estimates.
The consultancy Lane Clark and Peacock estimated that ending the pension exemption from IHT could raise the government £65.4 billion by 2047. IHT paid on inherited pensions could be worth £6.2 billion a year.
Halberda said: “Instead of simplifying the process, bringing pensions under the IHT umbrella in 2027 adds further complexity. It’s a major change that we’re still waiting for more detail on. People need clarity, but in the absence of clear direction many are unsure where to turn.”
