HMRC drags thousands in inheritance tax threshold - check if you're hit

Rachel Reeves seems to be looking for new ways to boost tax revenues. (Image: Getty)

Thousands of people are being pulled into the inheritance tax (IHT) net as frozen thresholds and rising property values push more estates above the tax-free limit.

New figures from HM Revenue & Customs (HMRC) show that inheritance tax receipts have reached £7 billion between April 2024 and January 2025, up £700 million from the same period the previous year.

Experts say this trend suggests another record-breaking year for inheritance tax revenues.

Ian Dyall, the head of estate planning at Evelyn Partners, said the increase shows how estates across the UK grow in value while nil-rate bands remain unchanged.

He warned that further tax measures could be on the way despite recent changes announced in the Budget, including pension and business asset rules adjustments.

READ MORE: Inheritance tax receipts hit near-record £7billion - three tips to cut your bill

Inheritance tax receipts have reached £7 billion between April 2024 and January 2025. (Image: Getty)

"Given the wide-ranging pressures on the public finances, with geopolitical upheaval now prompting calls for greater defence spending, it might not be long before Rachel Reeves is again forced to seek new ways of boosting tax revenues," Dyall said.

He added that inheritance tax remains one of the few options available to the Chancellor to "wriggle out of the fiscal strait-jacket," GB News reported.

Inheritance tax is charged 40% on estates worth more than £325,000, with an additional allowance of £175,000 when passing on a main residence to direct descendants.

There’s normally no Inheritance Tax to pay if your estate's value is below the £325,000 threshold or you leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club.

However, these thresholds have been frozen since 2009, meaning more estates become liable for tax as property and investment values rise.

Significant changes are also already in place for the coming years. From April 2027, pension pots will become subject to IHT, and in April 2026, the combined business and agricultural property relief exemption will be reduced to £1 million.

Inheritance tax is charged at 40% on estates worth more than £325,000. (Image: Getty)

While no major changes are expected in the upcoming March spending review, speculation is growing that the autumn Budget could introduce further reforms.

Experts suggest that the rules on gifting could be tightened, making it harder for families to reduce their IHT liabilities.

"That could close off some of the options that families have been using to reduce their IHT liability," Dyall explained.

Families can make large one-off gifts and start a seven-year countdown before they become exempt from IHT.

Others use lesser-known methods, such as gifting out of surplus income to lower their tax exposure.

With more estates facing higher tax bills, some families are turning to insurance solutions to cover potential IHT costs.

Dyall said there is a rising number of clients seeking whole-of-life insurance policies designed to cover future IHT liabilities.

"Since October we have already seen many more clients seeking whole of life cover aimed at covering a future IHT bill so their beneficiaries will not have to foot it," he said.

With inheritance tax pulling in more revenue each year, families may need to seek professional advice to manage their tax planning and avoid unexpected bills.