Government sees inheritance tax receipts rise 14% to £4.1billion, ahead of new freeze

The Treasury collected £4.1bn in estate taxes from April to October this year, £500m more than in the same period a year earlier and a 14 per cent increase, HMRC’s latest figures show.

The news comes just days after Chancellor Jeremy Hunt announced an Inheritance Tax (IHT) freeze as part of his Autumn Statement package.

Currently, no IHT is payable if the deceased’s estate, including assets such as money, property or shares, is less than £325,000.

The threshold was supposed to be raised in 2025-2026 to prevent more people from getting caught by the tax, but last week’s announcement will now push this back to 2027-2028.

The move will raise an additional £1bn for the government, according to wealth manager Quilter.

If the zero tax rate for inheritance were to rise with inflation, it would rise to £338,000 in 2026/27 and £351,520 in 2027/28.

In addition, since the amount you are allowed to gift has not increased with inflation, the ability for people to reduce what their estate pays in estate taxes has been reduced.

These new numbers show just how much the government’s estate taxes look set to rise in anticipation of eventual freezes, thanks in large part to the steady rise in house prices pushing more estates above the threshold.

The average IHT bill is currently £216,000, but research carried out by wealth investment service Wealth Club shows that the extended freeze, combined with rampant inflation, will mean estate tax will be £297,793 in 2025-26 and £336,605 in 2027-28 at a conservative estimate. Currently, one in 25 estates pays inheritance tax.

Julia Rosenbloom, tax partner at Evelyn Partners, the leading wealth management and professional services group, said: ‘Coming fast on the heels of Jeremy Hunt’s fall statement, if anyone needed a reminder of the creeping growth of estate taxes, it’s here in the form of new data showing rising estate tax revenues.

“This process is likely to continue rapidly through 2028 as under-the-radar tax impediments operate. Even with moderation in real estate and investment asset prices, estates that come to be inherited will sit for years or decades of growth, thanks in large part to the hard work and prudence of post-war generations.

The Office for Budget Responsibility expects IHT revenues to rise from £6.1bn in the 2021/22 tax year to £7.8bn in 2027/28 – an increase of 28 per cent.

IHT has in some ways been described as a ‘voluntary’ tax, as giving away assets during life is a very effective way to reduce or wipe out IHT liability. But large gifts remain in the estate for seven years, assets must be transferred ‘without obligation’ and most savers prefer to keep access to their assets in case they are needed later in life.

“Smaller gifts can be made that leave the estate immediately, but the limits are restrictive and subject to the same contraction in real terms in the face of inflation as the zero rate band.”

Rosenbloom adds that not everyone can use the residential zero rate band, as it only applies when a property is bequeathed to a direct descendant and when the individual’s estate is worth less than £2m.

Inheritance tax is notoriously unpopular. According to research from Handelsbanken Wealth and Asset Management, more than half of adults in the UK want the policy reduced or removed altogether.

Of these, more than a quarter (27%) want IHT to be scrapped. Women (29 percent) are more likely to want the tax abolished than men (25 percent), while those aged 50 to 64 are most in favor of abolishing the tax, with 31 percent in favor of abolishing it.

This compares to only 21 percent of 18 to 34 year olds who want it removed.

A quarter of adults (25 percent) want IHT to be reduced, with those over 65 being the most in favor at 30 percent, compared to just 22 percent of those aged 35 to 49.