The Ever-Increasing Inheritance Tax Receipts: What's Driving the Surge?

Inheritance tax (IHT) has become a hot topic in the UK, with HM Treasury raking in more

money from it than ever before. In April 2025 alone, IHT payments brought in a whopping £780 million, the second highest monthly total ever recorded. The 2024/2025 fiscal year saw a record IHT take of £8.2 billion, and experts predict this figure could rise to more than £14 billion by the end of the decade. So, what's behind this steady increase in inheritance tax receipts?

Frozen Tax Thresholds

One big reason for the rising IHT receipts is the government's decision to freeze tax thresholds. The main IHT nil-rate band, which is the amount up to which no inheritance tax is due, has been stuck at £325,000 since the 2009/2010 tax year. Plus, the residence nil-rate band, which applies to the value of the main home, has been set at £175,000 since 2020/2021. These frozen thresholds mean that as asset values, especially property prices, keep going up, more estates are pulled into the IHT net.

Skyrocketing Property Prices

The surge in property prices over the past decade has played a huge role in the increase in IHT receipts. As the value of homes rises, more estates exceed the nil-rate bands, resulting in higher tax bills. This trend is especially noticeable in areas with booming real estate markets, where even modest homes can push estates over the tax-free thresholds.

Growing Wealth

Another factor driving the rise in IHT receipts is the overall increase in wealth accumulation. As people accumulate more assets over their lifetimes, the value of their estates grows. This growth, combined with the frozen tax thresholds, means that more estates are subject to inheritance tax when passed on to heirs.

Government's Stealth Tax Strategy

Experts have pointed out that the government's approach to IHT can be seen as a "stealth tax" strategy. By keeping the thresholds frozen while asset values rise, the government effectively increases tax revenue without changing the tax rates. This strategy has quietly drawn in ever-growing sums, contributing to the record IHT receipts.

Lack of Reform

Despite discussions about the fairness and structure of the IHT system, there has been little movement towards reform. The current system continues to benefit from rising asset values and frozen thresholds, making it a reliable source of revenue for the Treasury and while the issue of IHT reform remains a topic of debate, no significant changes have been enacted.

Financial Planning and Exemptions

While the rising IHT receipts indicate that more estates are paying the tax, it's worth noting that many estates can avoid or reduce IHT through careful financial planning. Various exemptions and gifting rules allow individuals to pass on wealth without incurring significant tax liabilities. However, not all estates take advantage of these opportunities, contributing to the higher tax receipts.

Conclusion

The ever-increasing inheritance tax receipts by the UK HM Treasury are driven by a mix of frozen tax thresholds, rising property prices, growing wealth, and the government's strategic approach to taxation. As asset values continue to grow, more estates are pulled into the IHT net, resulting in higher tax bills and record receipts. While discussions about reform persist, the current system remains a significant source of revenue for the Treasury, highlighting the importance of financial planning to mitigate inheritance tax liabilities.

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