Inheritance tax (IHT) payments brought a total of £780 million into the Treasury just in April, the second highest monthly total ever recorded, HMRC data shows.
It comes as frozen tax thresholds and higher house prices continue to pull people into the IHT trap, and marks an increase of £97 million in IHT revenues compared with the same month last year.
Overall, the 2024/2025 year saw a record IHT take of £8.2 billion, and the figures for this year are predicted to be even higher.
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The latest Office for Budget Responsibility (OBR) forecast on IHT made at the Spring Statement estimated the tax would raise £9.1 billion for the Treasury in 2025/2026, with this figure rising to more than £14 billion by the end of the decade.
The Treasury has so far enjoyed four consecutive years of record inheritance tax receipts, and this April’s figures show a rapid start to 2025/26.
Shaun Moore, tax and financial planning expert at wealth firm Quilter, said: “HMRC’s latest figures mark the start of a new tax year, but the story remains much the same. The government’s stealth tax strategy is still quietly drawing in ever-growing sums.”
Higher IHT bills
Frozen nil-rate bands for IHT are dragging more families into paying the tax on their loved ones’ estate. Average earners now face a £200,000 inheritance tax bill, according to new analysis.
Stephen Lowe, director at retirement specialist Just Group, said: “Rising IHT receipts to-date have been driven by the pincer movement of the ongoing freeze on thresholds alongside growth in asset prices.”
The main IHT nil-rate band – under which no IHT is due – has been fixed at £325,000 since the tax year 2009/2010.
The residence nil-rate band – which applies towards the value of the main home, and up to which no IHT is due – was introduced in the tax year 2017/2018. Starting at £100,000, it was increased by £25,000 each year until reaching £175,000 in 2020 to 2021, where it has stayed even as property prices have soared.
These two allowances give each individual £500,000 they can pass on to loved ones without paying IHT at 40%. Spouses also inherit any unused allowance, so there is the potential for up to £1 million to be passed on inheritance tax-free.
“But with property prices remaining high and nil-rate bands still frozen until 2030, more families are being caught by IHT, many without realising until it’s too late,” Moore said.
Upcoming changes to business and agricultural relief from 2026, and the inclusion of unused pensions in estates from 2027, mean this trend is unlikely to reverse any time soon.
“Further reforms announced at the Autumn Budget are likely to accelerate the inheritance tax haul even further over the coming years, especially proposed changes to the treatment of pension death benefits later this decade,” said Lowe.
In the 2024 Autumn Budget, Chancellor Rachel Reeves announced that from 6 April 2027, unused pension savings may be included in an estate for IHT purposes. Currently, unused pensions are typically paid tax-free to beneficiaries.
Reeves also announced that from April 2026, it would restrict the inheritance tax relief available for agricultural and business property.
“Anyone who is concerned their estate may be subject to IHT should make an up-to-date valuation of their estate, including a recent assessment of their property wealth, to understand if they may be liable to IHT,” said Lowe.
“Estate planning is complex and many people who want to manage their estate efficiently will benefit from professional financial advice.”
For those who are worried about IHT, gifting remains the best defence against it, but this should be weighed against your own needs. You could cut your inheritance tax bill by £37,000 by making gifts to them in your lifetime.
Income tax thresholds frozen
PAYE income tax and National Insurance receipts also increased in April at £47.9 billion, which is £2.9 billion higher than in April 2024.
With income tax thresholds still frozen, more workers are being dragged into higher rates of tax simply by receiving pay rises that don’t necessarily even keep pace with inflation.
Personal tax thresholds have been frozen in cash terms since April 2021, whereas previously most were due to rise in line with CPI inflation. When earnings rise relative to tax thresholds, more of taxpayers’ income is taxed, and more of what is taxed falls into higher tax bands. This is known as fiscal drag.
Moore said: “It’s a highly effective tactic for boosting Treasury receipts without overtly raising tax rates. Reeves signalled that the freeze was going to come to an end in 2028 but whether this promise can be kept will depend on the state of the nation’s finances as we approach the Autumn Budget this year.”
Almost 32 million people – more than half of all UK adults – could either start paying income tax for the first time, or be dragged into a higher tax band, due to the five-year freeze on income tax thresholds. Find out what to do if frozen tax brackets put you in a higher tax bracket.
Are there more tax rises to come?
As details emerge of a memo sent by deputy prime minister Angela Rayner to Chancellor Rachel Reeves calling for a £4 billion tax raid on savers and investors, experts fear some of them might make an appearance in the Autumn Budget.
The memo reportedly included a raft of potential revenue-raising measures such as reinstating the pensions lifetime allowance, scaling back dividend tax reliefs, and a higher corporation tax rate for banks.
“Leaked proposals from Labour this week suggest the Treasury’s appetite for revenue may not yet be satisfied,” said Moore.
“Combined with speculation that the additional rate income tax threshold could remain frozen beyond 2028, it is clear the UK’s tax landscape is evolving quickly and may become more punitive,” he said.
“For households feeling the squeeze, the compounding effect of frozen thresholds and shrinking reliefs makes careful tax and financial planning more important than ever.”
