Annual inheritance tax receipts rise by 10%
HMRC collected £8.25bn in inheritance tax in 2024-25, a 10% rise on the £7.5bn collected in the previous year, according to new official figures released today.
Overall, HMRC collected £857.0 billion in taxes in 2024-25, an increase of 3.4% from the year before.
Receipts from Income Tax, Capital Gains Tax and NICs combined accounted for 57% of annual receipts, with VAT and business taxes the next largest contributors, contributing an average 21% and 10% of total receipts respectively.
Despite income tax rates and thresholds remaining unchanged, income tax receipts rose by 9.3% year-on-year as fiscal drag pulled greater numbers of people into paying tax or paying at higher rates.
Corporation tax receipts also rose year-on-year by 7%.
Despite the rises in taxes collected during the year, borrowing in the financial year ending March 2025 is provisionally estimated at £151.9bn, £20.7 billion more than in the previous year and £14.6bn more than the £137.3 billion forecast by the Office for Budget Responsibility.
Elsa Littlewood, private wealth partner at BDO said: “With borrowing once again exceeding OBR forecasts, the Chancellor may be under more pressure to raise taxes further at the Autumn Budget.
“Inheritance tax receipts are up 10% year-on-year and additional changes to IHT were announced in Labour’s first Budget – therefore, many families will want to revisit their plans now to try and pass on assets in the most tax-efficient manner.
“Under normal circumstances, the threshold for inheritance tax is £325,000, so if your estate is valued under £325,000 there will be no IHT to pay. If you pass on your family home to your children, stepchildren or grandchildren, your threshold can increase to £500,000.
“These thresholds were fixed until April 2030 in the Autumn Budget, so if house prices continue to rise, the effects of fiscal drag will pull more people into the IHT net.
“Gifting is one tax planning option to consider as passing on an asset to another individual is often exempt from IHT: if the donor survives for seven years from the date of the gift, it falls outside of their IHT estate. Making a gift when asset values are low can also help mitigate potential IHT exposure.
“The creation of a trust has also been a longstanding solution for many individuals seeking to pass on assets to the next generation. While settling a trust is generally a chargeable IHT event, individuals can transfer £325,000 of assets into a trust without incurring an IHT liability. This increases to £650,000 for married couples jointly settling a trust. However, the rules can be complex so advice should be sought.
“Gifting to a charity is also exempt from IHT, however, the charity must be a UK registered charity or Community Amateur Sports Club (CASC).
“The way inheritance tax applies to pensions is also changing. Currently, residual pensions savings can be passed on free of IHT, but from April 2027, unspent pension pots will be brought into the scope of inheritance tax. Some people may choose to crystallize pension benefits, but there are many financial, investment and IHT issues to consider so you will need to take advice from an independent financial adviser.
“The 2024 Autumn Budget also proposed changes to IHT on business and agricultural property. Applying from April 2026, the first £1m of combined agricultural and business assets will continue to have 100% of relief from IHT, but this will reduce to 50% relief for amounts over £1m. Many people wishing to pass on family businesses or farms are currently exploring the best options to do so in a tax-efficient and sustainable manner.”