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August 08.2025

2 Minutes Read

Why Government Earnings from IHT Continue to Double: Understanding the Trends

HM Revenue & Customs sign related to government earnings from inheritance tax.

Inheritance Tax: A Growing Burden on UK Families

In recent years, inheritance tax (IHT) has transformed into a significant financial burden for many UK families. HMRC reported that government revenue from IHT has soared from £3.8 billion in the 2014/15 tax year to a staggering £8.25 billion in the latest fiscal period. This increase underscores a troubling trend: not only is the financial strain on families multiplying, but so too is the number of estates facing inheritance tax bills, reflecting a 13% rise in occurrences over the past year to 4.62% of deceased estates.

The Impact of Frozen Tax Bands

One of the key factors behind this dramatic increase is the freeze on the nil-rate bands, which have remained unchanged since 2009. The nil-rate band allows individuals to pass on £325,000 inheritance tax-free, while the residence nil-rate band (RNRB) permits an additional £175,000 for property passed to direct descendants. Most couples could theoretically transfer up to £1 million tax-free upon the second death. However, had these bands been indexed to inflation, this figure could have soared to £1.448 million, emphasizing the growing middle-class pinch as inflation rises and home values climb.

Future Reforms and Their Implications

As the government gears up for policy revisions, we must consider the implications of Chancellor Rachel Reeves’ budget, which has already threatened tax exemptions for family businesses and farms. Starting April 2026, previously exempt wealth will be included in IHT calculations, compounding the burden on grieving families. AJ Bell’s expert Charlene Young warns that the continued freeze on tax allowances until at least 2030 not only amplifies taxation woes today but also sets a precedent for mounting challenges ahead.

Recommendations for Financial Assets

In light of these rising tax liabilities, families need to adopt strategic financial planning. Exploring investment vehicles that oftentimes can provide tax benefits, such as trusts or life insurance policies, may alleviate future tax burdens. Financial institutions should educate their clients about these avenues, providing tools and resources to navigate the complexities of inheritance and estate tax effectively.

Take Action to Protect Your Wealth

Given the volatile landscape of inheritance tax reforms, it’s imperative for families and financial advisors alike to engage proactively. Evaluating your estate strategy now can shield your loved ones from the full brunt of IHT regulations looming on the horizon. Whether it’s reviewing current assets or considering tax-efficient strategies, awareness and preparation can be your best defense against escalating government revenues from IHT.

Financial Independence & Retirement Planning

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Why Government Earnings from IHT Continue to Double: Understanding the Trends

Inheritance Tax: A Growing Burden on UK Families

The Impact of Frozen Tax Bands

Future Reforms and Their Implications

Recommendations for Financial Assets

Take Action to Protect Your Wealth

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