Between April and November 2024, HMRC collected a remarkable £5.7 billion in inheritance tax receipts, an increase of £600 million compared to the same period last year.
This figure highlights a decades-long upward trajectory, fuelled by rising property values and frozen tax thresholds, which have ensnared an increasing number of estates.
Soaring Inheritance Tax: Property Prices and Policy Changes Drive Increase
Nicholas Hyett, Investment Manager at Wealth Club, attributes much of this rise to soaring property prices:
“Decades of rising house prices have pushed estates above the frozen nil-rate bands. The government is benefitting at the expense of grieving families.”
This trend is set to intensify, with changes due in April 2027 that will see pension pots brought within the scope of inheritance tax. Such measures are likely to capture more families in the tax net, potentially dissuading long-term saving and investment.
Factors Contributing to Rising Inheritance Tax Receipts:
- Frozen Nil-Rate Bands:
The tax-free threshold of £325,000 has remained unchanged since 2009, eroding its real value as asset prices rise. - Property Price Inflation:
According to the Office for National Statistics, UK house prices have increased by over 60% since 2010, pushing more estates above the taxable threshold. - Inclusion of Pension Pots (from 2027):
Currently outside inheritance tax rules, pension savings will become taxable as part of estates, significantly increasing taxable values. - Limited Exemptions:
Exemptions for gifts and trusts are capped or subject to stringent conditions, limiting options for families seeking tax relief.
New Tax Policies Threaten Family Businesses and Agriculture
Critics argue that these tax policies could have devastating consequences for family-run businesses and the agricultural sector.
The removal of inheritance tax relief on family businesses has drawn widespread concern, with many warning that it could signal the end for enterprises passed down through generations.
Farmers, already reeling from the newly introduced “Tractor Tax,” are raising alarms over the compounding effect of these changes. Hyett noted, “These reforms could devastate businesses and contradict the government’s objectives of stimulating economic growth.”
The Impact of Inheritance Tax on Family Businesses and the Agricultural Sector
- Loss of Generational Continuity:
Inheritance tax on family businesses may force heirs to sell assets to cover tax bills. - Economic Disruption:
The agricultural sector, heavily reliant on continuity, faces unique vulnerabilities due to the loss of tax reliefs. - Increased Costs:
Compliance and restructuring costs may increase, reducing profitability.
Strategies to Reduce Inheritance Tax Liability
Financial specialists are urging UK households to take pre-emptive action to minimise their inheritance tax liability. One recommended approach is making small, strategic gifts, which become fully exempt from inheritance tax after seven years.
Example: Annual Gift Exemption Table
| Type of Gift | Tax-Free Amount | Condition |
|---|---|---|
| Small gifts | Up to £250 each | Unlimited recipients |
| Annual gift allowance | £3,000 | Can be carried forward one year if unused |
| Wedding or civil ceremony | £5,000 (child), £2,500 (grandchild) | Provided to the individual getting married |
Jonathan Halberda, Specialist Financial Adviser at Wesleyan Financial Services, explained: “You can make unlimited gifts, but timing is critical. They typically take seven years to be completely inheritance tax-free.”
Halberda also highlighted that the £325,000 inheritance tax threshold has been frozen until 2030, pulling more estates into the taxable bracket as asset values increase.
Labour’s Inheritance Tax Hike: Immediate Gains, Long-Term Risks
The Labour government’s emphasis on increasing short-term revenues through inheritance tax has sparked concerns over its broader economic impact. Hyett warned:
“While this approach generates immediate revenue, it risks discouraging saving and investment. Over time, this could undermine the economy’s stability and growth.”
As inheritance tax receipts reach unprecedented levels, households, and businesses across the UK are facing significant pressures. Early estate planning and professional advice are crucial to safeguarding family wealth and ensuring financial stability.ing mounting pressures.
Moreover, careful estate planning and professional advice are now more essential than ever to protect family wealth and navigate this increasingly complex tax landscape.
