Inheritance tax and estate planning is now more important than ever before with inheritance tax receipts increasing. Our private wealth exerts are here to help.
HM Revenue and Customs have reported that Inheritance Tax (IHT) receipts for April 2024 to March 2025 reached £8.25 billion, which is an increase of £800 million, compared with the same period last year.
Rising property prices, inflation and frozen thresholds, which are set to stay until 2030, are some of the reasons why IHT receipts continue to increase. In addition, changes to the IHT treatment of pensions which will come into force in April 2027 will see many estates which otherwise would not have been subject to IHT now facing an IHT bill. It is more important than ever for people to ensure that they are obtaining IHT and estate planning advice.
Under the current IHT rules, the Nil Rate Band (NRB), which is the amount that can be passed to beneficiaries free from IHT after death, is £325,000. There is an additional allowance called the Residence Nil Rate Band (RNRB) of £175,000, which can be applied to an estate where a deceased leaves their residence to a ‘direct descendant’ on death and can be claimed if the total estate is worth less than £2 million. Both the NRB and RNRB allowance have been frozen at their current figures sine 2009 and will continue to be frozen until at least 2030.
Additionally, under current IHT rules, pension funds generally fall outside of an estate for IHT purposes. However as of April 2027, unused pension death benefits will be treated as part of an estate for IHT.
Finally, last year’s Autumn Budget announced reforms to Agricultural Relief and Business Property Relief, which will come into effect in April 2026. The first £1 million of qualifying combined assets will be exempt from IHT. Assets in excess of £1 million will be subject to a 50% relief, in comparison to the current regime where such assets are fully exempt from IHT.
From an estate planning perspective, in anticipation of such changes, there has been an increase in lifetime gifting and people using pension pots for such gifting and everyday spending, in an attempt to reduce the IHT burden on death. Lifetime gifting remains an effective way of seeking to reduce the IHT liability on death, however it is imperative to obtain professional advice to ensure that it is done in the most tax efficient way.
The use of trusts is also an effective estate planning tool and can allow people to make provisions for beneficiaries without making outright lifetime gifts. Similarly, the rules around setting up such trusts are complex and people should seek legal advice to ensure that they are set up properly and tax-efficiently.
Sian Jones, Chartered Legal Executive
Please do not hesitate to contact one of our Private Wealth specialists for further information as to how you can ensure Inheritance Tax efficiency through your estate planning.