Another sizeable increase in inheritance tax (IHT) receipts is further evidence of the impact of inflation and frozen nil rate bands pulling more estates into the ‘IHT net’ say financial planning and legal commentators.
IHT receipts for April to May 2025 totalled £1.5bn, £98m more than the same period in 2024. Recently published Office for National Statistics (ONS) figures show UK annual house price inflation slowed in April, down from 7.0% in the 12 months to March to 3.5% in the 12 months to April 2025. It is the first slow down in house price inflation since December 2023.
Even so, the average house prices in England (£286,000), Wales (£210,000), Scotland (£191,000) and Northern Ireland (£185,000) remains up on 12 months ago.
“With property values still high and nil-rate bands frozen until 2030, more estates are slipping into the IHT net, often without any deliberate wealth accumulation. Families can be caught off guard, particularly where no planning has been done in advance.”
said Rachael Griffin, tax and financial planner at Quilter
“And with future changes already legislated—including the tightening of business and agricultural reliefs, and the inclusion of unused pensions in estates from 6 April 2027—this upward trend is unlikely to reverse… lifetime gifting remains a highly effective tool, but it must be carefully weighed against… future financial needs. Utilising trusts can also be a good way of getting money out of (the) estate while still having a degree of control over how it is spent depending on the type of trust.”
Ian Dyall, Head of Estate Planning at wealth management firm Evelyn Partners added the unspent assets in Defined Contribution pensions were already ‘creating a planning headache for those looking to pass on wealth to their loved ones.’ One trend he indicates is increasingly popular is lifetime gifting, but warns the regime may also become a target for government looking to raise tax funding.
“Making regular gifts using the ‘normal expenditure out of surplus income’ exemption is one popular option, as is exploring longer-term gifting plan, such as starting the ‘seven-year clock’ ticking on larger gifts. How long clients can take advantage of these options remains to be seen. The Government may choose to overhaul the gifting regime at some point, potentially extending the seven-year rule to 10 years – a move that would create an extra hurdle for those wanting to pass on wealth in a tax-efficient way.”
Even ‘modest estates’ can face significant tax burdens said Richard Bate, head of private wealth at national law firm Weightmans, who also points to the ‘often overlooked’ impact of Capital Gains Tax if not carefully managed.
“Gifting assets during lifetime, while effective for reducing IHT exposure, can trigger an unwelcome double tax hit: CGT now, followed by potential IHT later if planning isn’t carefully managed. This makes strategic planning absolutely essential. Certain trusts or business structures might allow for deferral or mitigation of CGT, but these require careful setup and ongoing management.
“To avoid a double-whammy, families should take a coordinated approach to estate planning, considering options such as gifting strategies, trusts or succession planning tailored to the evolving tax landscape.”
One potential change in the offing is the roll back of proposed plans to introduce IHT on the global assets of non-doms as an exodus of wealthy individuals from the ‘punitive’ UK tax regime could force the government to review the policy. It has been reported there is ‘mounting evidence’ the policy is driving the wealthy out of the UK with the Centre for Economics and Business Research (CEBR) suggesting it could negate efforts to raise funds from the tax if a quarter or more of existing tax payers simply left the UK.
