The amount of money collected through inheritance tax is likely to rise further in the UK due to recent policy changes.
The UK tax authority has confirmed that it collected £6.3 billion (€7.5bn) in inheritance tax (IHT) over the nine months to the end of December.
That’s a £600 million (€710m) rise compared with the same period last year.
The increase is linked to the fact that more estates are now liable to pay IHT – partially due to the government’s decision to freeze tax bands.
IHT is equal to 40% of the value of estates above £325,000.
The government plans to maintain this tax band until 2030, which means more people will end up paying IHT as their assets become more valuable through inflation.
Growing amounts of wealth held at older ages, as well as the fact that more people are paying the tax, are also contributing to the rise in receipts.
“Inheritance tax provides a steadily rising flow of receipts for the Treasury as more estates, and more assets within each estate, are drawn across the exempt thresholds that are available to families, which have been frozen for many years”, said Carl Green, financial planning director at wealth manager Evelyn Partners.
The rise in wealth is notably boosted by rising house prices and the strong performance of many investment portfolios.
Taxing pension pots
“We expect inheritance tax receipts to grow strongly in real terms in the coming years”, said David Sturrock, senior research economist at Institute for Fiscal Studies.
“Policy changes made by the government at the last Budget – most significantly the bringing of pension pots into estates from April 2027 – will add to that growth in the future”, he told Euronews.
Currently in the UK, unused pension pots are not subject to inheritance tax if they are passed down after death, although other taxes may apply if the deceased individual was over 75.
The incumbent Labour government is set to change this rule, drawing pensions into taxable estates and therefore pushing up their value.
“The current proposals to subject unused pension funds to IHT will create significant problems for grieving families”, said Steven Levin, CEO of wealth management firm Quilter, expressing his concern over the policy shift.
“Families will face lengthy delays as executors handle valuations, forms, and inheritance tax on pensions alongside other assets. … Instead, we suggest introducing a flat-rate tax on unused pension funds that would apply after a pension ‘nil rate band’, set at an appropriate rate”, he added.
The nil rate band is the threshold above which IHT is payable.
Agricultural and business relief
Another modification of the tax structure involves changes to agricultural property relief, which sparked major protests late last year.
In October, Finance Minister Rachel Reeves announced that farms worth more than £1m (€1.2m) would be liable to pay 20% IHT from April 2026.
Farms and agricultural businesses had previously been exempt from this levy.
“Investors also need to be aware of the changes to business property relief”, said Sarah Coles, head of personal finance at Hargreaves Lansdown.
Under Reeves’ new plans, AIM shares will be taxed at 20% – no longer exempt from IHT.
The AIM is a sub-segment of the London Stock Exchange and sells stock in smaller, riskier or high-growth companies.
