Inheritance tax receipts hit £7 billion in the ten months from April 2024 to January 2025, according to figures released by HM Revenue and Customs (HMRC) this morning.
This is £700 million higher than the same ten months last year and continues the upward trajectory over the last two decades. HMRC raised £7.499 billion in 2023-4 tax year, but these figures show that they are well on track to smash through this figure for the 2024-5 tax year end.
Nicholas Hyett, Investment Manager at Wealth Club said:
“Inheritance tax continues to be a meal ticket for HMRC. It may only affect a small percentage of estates, but that number is growing. OBR estimates suggest nearly 10% of estates will pay death duties by 2030 due to increasing house prices, changes to inheritance tax rules and years of allowance freezes.
While we don’t expect to see any more changes to Inheritance Tax announced at next week’s Spring Statement, the changes announced in the autumn are yet to kick in and will increase the inheritance tax take substantially over the next few years.
The main inheritance tax allowance has now been frozen at £325,000 for 15 years, and remains frozen for another 5 years until 2030, while the £175,000 residence nil rate band hasn’t changed since 2020. These freezes are a form of stealth tax, which allows the government to increase their take without a backlash from a headline grabbing tax hike, but still contribute to the highest tax burden in 70 years.
With inheritance tax reliefs for AIM and private businesses set to be severely restricted, it has rarely been more difficult to avoid the taxman having your cake and eating it too.
Lifetime gifts are probably more attractive than ever, particularly regular gifts out of leftover income since these are immediately free of inheritance tax. This approach is particularly popular with grandparents, who use it to pay for things like school or university fees. Avoiding double taxation from inheritance tax is a nice added sweetener.”
What can investors do to mitigate their inheritance tax bill?
Despite recent reforms there are still ways to reduce the inheritance tax paid by your estate, although many of them do require time and more risk:
Those concerned about inheritance tax should consider:
Giving money away early. Gifts taken out of regular income, which are not deemed to affect the giver’s standard of living, are inheritance tax free on day one – as are certain smaller gifts. Timing is key as you can give unlimited amounts away but typically these take seven years to be completely inheritance tax free. Of course, once you give away the money you’ve lost control. If you need it back for an emergency, that’s not an option.
Investing in unlisted companies that qualify for Business Property Relief. These are typically inheritance tax free after two years. Investing in unquoted businesses can be risky, however, unlike giving the money away, you retain control. From 2026 you will have an overall £1 million Business Relief Allowance. Anything in addition will be taxed at half the normal rate or 20%.
Investing in an AIM ISA. ISAs are not inheritance tax free. When you pass away, your loved ones could miss out on 40% of your hard-earned cash. AIM ISAs are a popular, although much riskier way, to reduce this. Currently AIM shares could be IHT free after two years. From 2026 the IHT will be halved to a rate of 20%.”
