The UK Treasury has quietly raked in a record £4.4 billion from inheritance tax (IHT) in just six months, official figures show. As more families are pulled into the IHT net due to stagnant tax thresholds, concerns are growing over the mounting financial burden on ordinary households.
The sum collected between April and September marks a 2.3% increase compared to last year, setting the stage for the government’s highest-ever annual haul from IHT.
Rising Inheritance Tax Hits Record High Amid Frozen Thresholds
The sharp rise in receipts isn’t due to new tax hikes. Instead, it’s the result of a stealthy phenomenon known as fiscal drag, where tax thresholds stay frozen while asset values climb. Currently, estates valued over £325,000 are taxed at 40% on the excess.
An additional allowance of £175,000 exists under the residence nil rate band (RNRB) for those passing their main home to children or grandchildren. But these thresholds have remained unchanged since 2009.
Over time, even modest estates have edged above these limits due to rising property prices, investment gains, and inflation, dragging more families into the IHT bracket.
Ian Dyall, head of estate planning at Evelyn Partners, warned: “The Treasury is on course for another record-breaking year of revenues from inheritance tax (IHT). Fiscal drag is quietly pulling thousands more families into the IHT net as asset values increase year-by-year.”
With the Chancellor’s Autumn Budget on the horizon, Mr Dyall believes more changes could be coming, particularly around rules for gifting wealth.
“Possibilities include a crackdown on gifting, which could take the form of a lifetime gifting cap replacing the current unlimited gifting rule under the seven-year exemption, or extending the seven-year rule out to ten or more years.”
He noted growing concerns around unspent pension pots potentially being brought into the scope of IHT. Many families, spooked by the rumours, have started pulling out pension cash early and gifting it — a move financial experts are urging people to approach with caution.
The IHT surge is being felt most sharply by middle-income families, particularly those in areas where house prices have soared over the past decade. What was once considered a tax for the ultra-wealthy is now creeping into mainstream households, many of whom are unaware they’ve crossed the threshold.
Gifting Rules Under Scrutiny
Rachael Griffin of Quilter highlighted the government’s continued reliance on fiscal drag to prop up its revenues.
“Today’s HMRC data offers a revealing snapshot of the public finances and how heavily the government continues to lean on fiscal drag to prop up revenues.”
She also noted the potential widening of IHT’s reach through the proposed inclusion of pensions in the tax from 2027.
“These measures risk transforming what was once a niche tax affecting a small minority into one that captures an increasingly large share of the population.”
Currently, UK adults aged 55 and over collectively hold over £3 trillion in assets — much of which may soon fall under the IHT net unless reforms are made or thresholds are updated.
Market Caution & Financial Planning Urgency
The looming Budget has also cast a shadow over the housing market. The usual autumn bounce has failed to materialise, with buyers hesitant and waiting to see what changes may unfold.
Stephen Lowe, director at retirement specialists Just Group, echoed the concerns: “The Treasury now looks set to collect a fifth consecutive record annual haul. With further reforms that were announced at last autumn’s Budget yet to be implemented, we can expect this trend to continue and grow.”
He stressed the importance of timely estate assessments and professional advice: “Anyone who is uncertain or concerned that their estate may be subject to inheritance tax should get an up-to-date valuation of their estate, including a recent assessment of their property wealth.”
With wealth thresholds frozen and the value of homes and pensions creeping up year after year, IHT is no longer just a concern for the elite. Middle-income families now find themselves at risk of unexpected tax bills after the death of a loved one.
The upcoming Budget could tighten rules even further. Gifting strategies, pension withdrawals, and estate planning may all be reshaped. For now, financial experts are urging caution and encouraging families to seek professional guidance before making hasty decisions.
