Inheritance tax (IHT) receipts reached £7.1 billion in the first ten months of the 2025/26 tax year, according to HM Revenue & Customs (HMRC) data released this morning. That is £100 million higher than the same period last year and continues a long-term upward trend in death tax takings.
The Office for Budget Responsibility forecast that IHT will raise £9.1 billion in the current tax year. Combined with measures confirmed in recent Budgets and legislation, this suggests the government remains on track to meet that target with two months still to go.
But rising receipts come amid intensified enforcement and public criticism that the inheritance tax system is unfairly affecting the middle class – a group historically seen as outside the reach of death duties.
Isaac Stell, Investment Manager at Wealth Club, said:
“The government has made a pig’s ear of inheritance tax reform. Crackdowns on farmers and business owners proved unpopular and ultimately unworkable, forcing a partial retreat on relief thresholds. But years of frozen allowances, combined with new rules that will bring pensions into the scope of IHT, mean more ordinary families, not just the wealthy, are being pulled into the tax net.
At the same time, HMRC’s tougher enforcement is adding further pressure at what is already a difficult time for bereaved families. With the tax base widening and sharp ‘cliff edges’ in the relief system still in place, proactive planning and accurate reporting have never been more important.
Recent reporting also highlights growing public frustration that inheritance tax is increasingly affecting middle income households, particularly those whose main wealth is tied up in their home or retirement savings. Frozen thresholds, set against steadily rising asset values, mean many people who would not consider themselves wealthy are now facing significant tax bills.
Meanwhile, HMRC investigations are increasing. More than 14,000 bereaved families have been investigated for potentially underpaid inheritance tax since 2022–23, with the number of cases this year running well ahead of last year. These inquiries which are often prompted by data matching and valuation checks can last months or even years, and may result in additional tax, interest and penalties.
Taken together, rising asset values, static allowances and expanded reporting requirements are creating a situation where estates that previously fell outside the IHT net are now becoming liable, leaving many middle-class families caught off guard.
Key policy points now in place or confirmed:
Frozen nil-rate bands: The lifetime nil-rate band of £325,000 and the residence nil-rate band of £175,000 remain frozen. With property price inflation far outpacing these static thresholds, more estates including those of so-called “ordinary” homeowners are being dragged into IHT liability.
Pension inclusion from April 2027: Most unused private pensions will be counted as part of an individual’s taxable estate, a major expansion of what is subject to IHT. Executors will be required to report and pay any tax due on pension assets.
Business and agricultural relief reforms: From April 2026, BPR/APR qualifying assets are exempt from IHT up to £2.5 million; any excess over that will be taxed at an effective 20% rate.
What can families and investors do to mitigate their inheritance tax exposure?
Despite tighter rules and increased enforcement, tax-efficient estate planning remains possible, though it now demands earlier, more detailed planning:
Gifting early and carefully: Gifts from surplus income are immediately exempt; larger gifts fall outside the estate if the donor survives for at least seven years, but risk losing control of those assets.
Business Property Relief (BPR) and qualifying investments: Planning around the £2.5 million full relief allowance and understanding effective tax rates on excess assets is critical.
AIM ISAs and other relief-eligible holdings: While traditional ISAs still form part of the estate for IHT purposes, investing through vehicles that may qualify for relief requires professional risk assessment.
Revisiting pension strategies: With pension IHT changes looming, serious consideration of how death benefits are held and passed on has become imperative.”
