Inheritance tax (IHT) receipts hit £5.2 billion in the first seven months of the 2025/26 tax year, according to data released by HM Revenue and Customs (HMRC) this morning.
This is £0.2 billion higher than same period of the previous tax year and continues an upward trend over the last two decades.
Nicholas Hyett, Investment Manager at Wealth Club said:
“The “hokey-cokey” Budget is just days away, and recent IHT history provides the blueprint we expect the Chancellor to follow.
IHT’s main nil-rate threshold has been frozen at £325,000 since 2009 (had it increased in line with inflation it would now be nearly £525,000). That can squeeze an extra £80,000 from an estate without the government having to “raise” taxes at all. The Chancellor is set to repeat the trick with various other tax allowances – including freezing income tax thresholds into next decade.
Targeted IHT reliefs have come under attack in recent years – including business relief, agricultural relief and the alternative investment market. All of these changes are sold as closing loopholes and targeting the wealthy without effecting “working people”, never mind that they have been damaging for small businesses, family farms and UK capital markets. We expect the Chancellor to make a song and dance about targeting “special interests” again in the budget through salary sacrifice and some form of “mansion tax” – though in practice tinkering around the edges like this has profound knock-on effects, not least on activity in the housing market.
Finally there’s pensions. Stripped of IHT relief last time round and now facing national insurance on contributions if salary sacrifice is targeted – pensions are the ultimate forbidden fruit for any Chancellor.
There may be a final grab for more IHT revenues this time round, through attacks on gifting rules. The current seven year rule, after which gifts are free from IHT, could be extended or there could be a move to cap gifts out of surplus income (which are currently free from inheritance tax straight away).
The reality though is that the government is close to the bottom of the barrel where IHT is concerned. And in that too IHT is foretelling the fate of wider tax policy. Next year the government is going to find it can’t get any further with tinkering and threshold freezes. If it wants to raise more money it’s going to have to front up to the voter and visibly raise taxes – it’s just a shame there’s no death duty on political administrations, because the Treasury would be in for a windfall.”
What can investors do to mitigate their inheritance tax bill?
As things stand 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 could consider:
Giving money away early – still an option as things stand. 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 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%.
