Inheritance tax continues to climb – how sound is your estate planning?

Inheritance Tax (IHT) receipts hit £5.8billion in the first eight months of the 2025/26 tax year.

That figure, revealed by HM Revenue & Customs (HMRC)m is £84m higher than the same period 12 months earlier.

And it continues a steady upward trend that has been witnessed for more than 20 years – a rise that looks set to continue.

The Office for Budget Responsibility has forecast that IHT will raise £9.bn in the current 2025/26 tax year. And there are predictions from some experts that it will hit £14.5bn by the end of the decade.

For one thing, the chancellor’s freezing of the nil-rate band until 2031 will lead to more and more families being left with a tax bill.

Pensions have also been caught in the IHT net. From April next year, unspent pension pots will be brought within the scope of inheritance tax, removing their long-standing role as a planning tool.

IHT can apply to certain lifetime transfers and gifts and also on the value of an individual’s estate at the time of death.

The IHT nil rate band is £325,000, with an additional £175,000 ‘residence nil rate band’ available in some cases for leaving the family home to direct descendants.

For any value remaining after the nil rate bands and IHT reliefs and exemptions, the maximum rate of IHT remains at 40 per cent.

The residence nil rate band will also remain frozen at £175,000 until 2031.

There is some positive news. In December the government announced that the level of the Agricultural and Business Property Reliefs threshold will be increased from £1m to £2.5m when it is introduced in April this year.

This allows spouses or civil partners to pass on up to £5m in qualifying agricultural or business assets between them before paying inheritance tax, on top of existing allowances.

The government says it has listened to concerns of the farming community and businesses about the reforms announced in the 2024 Budget.

And it adds that raising the threshold will significantly reduce the number of farms and business owners facing higher IHT bills under the reforms, ensuring that only the largest estates are affected.

There is no time like the present to turn your attention to estate planning. We can work with you to ensure your plan is up to date and that it is fit for purpose.

It should meet all your wishes when it comes to the distribution of your assets through your family. Careful planning and a pro-active approach is critical.

• To discuss estate planning or any issue raised by this article please contact me on 01772 430000