Taxing times for bereaved families as IHT receipts hit a fresh record
Susannah Streeter, chief investment strategist, Wealth Club: ”The government has arguably made a mess of inheritance tax reform. Crackdowns on farmers and business owners proved unpopular and ultimately unworkable, forcing a partial retreat on relief thresholds. But years of frozen allowances, combined with new rules that will bring pensions into the scope of IHT, mean more ordinary families, not just the wealthy, are being pulled into the tax net. Inheritance tax receipts have hit a fresh high of £8.5bn, surpassing last year’s total and marks the fifth consecutive annual record.
HMRC’s tougher enforcement is adding further pressure at what is already a difficult time for bereaved families. With the tax base widening and sharp ‘cliff edges’ in the relief system still in place, proactive planning and accurate reporting have never been more important.
Recent reporting also highlights growing frustration that inheritance tax is increasingly affecting middle-income households, particularly those whose wealth is concentrated in property or retirement savings. Frozen thresholds, unchanged for years, mean more estates are being pulled into liability even without meaningful gains in real-terms wealth.
Meanwhile, HMRC compliance activity continues to rise. More than 14,000 bereaved families have been investigated for potentially underpaid inheritance tax since 2022–23, with case volumes running ahead of last year. These enquiries, often triggered by data matching and valuation checks, can last months or even years and may result in additional tax, interest and penalties.
Taken together, rising asset values, static allowances and expanding reporting requirements are creating a system that is increasingly out of step with economic reality, drawing in estates that would previously have fallen outside the inheritance tax net and catching many families off guard.
What can families and investors do to mitigate exposure?
Despite tighter rules and increased enforcement, tax-efficient estate planning remains possible, though it now requires earlier and more detailed preparation:
It’s worth gifting early and carefully. Gifts from surplus income remain immediately exempt, while larger gifts fall outside the estate if the donor survives seven years.
It might be worth looking at Business Property Relief (BPR) and qualifying investments. Planning around the £2.5m relief threshold remains central to reducing exposure.
AIM ISAs and relief-eligible holdings could be attractive. Certain investment structures may still offer mitigation opportunities, subject to advice and risk assessment.
It’s time to revisit pension strategies. With pensions set to fall within the IHT net from 2027, estate planning around retirement assets is becoming increasingly important.’’