HM Revenue and Customs (HMRC) has released figures showing inheritance tax receipts have reached £5 billion in the seven months from April to October 2024.
This is an increase of £0.5 billion compared to the same period in the previous tax year, continuing the upward trend seen over the past two decades.
Experts have suggested that Brits should look into giving away their money early if they want to avoid losing out.
In the last full tax year, inheritance tax raised £7.499 billion, with only one in 20 estates currently liable. However, in the Autumn Budget, the Chancellor announced several changes:
1. An extension to the freeze on IHT thresholds for another two years (until 2030).
2. Reforms to Agricultural Relief and Business Property Relief, meaning that from April 2026, the first £1m of qualifying combined assets will be exempt from inheritance tax, but a 50% relief will apply to assets over £1m, at an effective rate of 20%.
3. Qualifying AIM shares will no longer have full exemption from IHT; instead, from 2026 they will have an inheritance tax rate of 20% if held for two years.
4. From April 6, 2027, inherited pensions could be subject to inheritance tax in addition to income tax levied on the recipient, meaning passed-down pensions could be taxed at an effective rate of up to 67% – subject to consultation.
Alex Davies, CEO and Founder of Wealth Club, said: “Inheritance tax was already an absolute cash cow for the government. The extreme changes announced in last month’s Budget, which badly affect farmers, business owners, pension policyholders and investors, mean these figures are only going to increase over the coming years.
“We believe all the changes to inheritance tax made in the Budget are extremely short-sighted. Firstly, the tax burden is already at its highest in 70 years and growth is very low. More tax is likely to stifle growth further. Secondly these changes have given those affected no time to plan.
“It’s very much a case of “one day, that’s your money, the next day, it’s not”; a sentiment which is hardly going to encourage people to invest for the future whether that’s in their own business or in a savings vehicle such as a pension.
“That said you can only base your decisions on the facts as they are now and seemingly there are still ways available to reduce the inheritance tax paid by your estate, although many of them do require time and more risk.”
The expert suggests that those concerned about inheritance tax should consider:
Handing out money early is one way to avoid inheritance tax. Gifts taken from regular income that don’t affect the giver’s lifestyle are free from inheritance tax immediately, as are certain smaller gifts.
However, timing is crucial as you can give away unlimited amounts, but it typically takes seven years for these to be completely free from inheritance tax. But remember, once you’ve given the money away, you lose control over it. If you need it back in an emergency, that won’t be an option.
Investing in unlisted companies that qualify for Business Property Relief is another method. These investments are usually free from inheritance tax after two years. Although investing in unquoted businesses carries risks, unlike giving money away, you maintain control. From 2026, you’ll have a £1 million Business Relief Allowance. Anything above this will be taxed at 20%.
Another option is investing in an AIM ISA. Regular ISAs are not exempt from inheritance tax. When you die, your loved ones could lose up to 40% of your hard-earned cash. AIM ISAs are a popular, albeit riskier, way to reduce this. Currently, they could be IHT-free after two years. From 2026, the IHT will be halved to a rate of 20%.