Inheritance Tax Haul Soars to Unprecedented £7.1 Billion
The government's inheritance tax revenue has reached a historic peak, with official figures revealing that HM Revenue and Customs collected a staggering £7.1 billion between April 2025 and January 2026. This represents a significant £100 million increase compared to the same period in the previous year, underscoring the growing financial burden of this controversial levy on British estates.
Frozen Thresholds and Fiscal Drag Drive Record Intake
The relentless rise in inheritance tax receipts is primarily attributed to the long-standing freeze of the nil-rate band threshold, which has remained fixed at £325,000 since 2009. This policy, known as fiscal drag, has systematically drawn more estates into the tax net as asset values and inflation have climbed steadily over the years. Consequently, a growing number of families now face the 40 per cent tax rate on assets transferred after death.
In addition to the basic allowance, there exists a separate £175,000 relief for households inheriting a primary residence from a relative. However, this supplementary provision has done little to mitigate the overall upward trajectory of tax liabilities for many estates.
Government Reforms Set to Amplify Future Collections
The record-breaking figures arrive just ahead of a series of inheritance tax reforms announced by Chancellor Rachel Reeves in the 2024 Budget, most of which are scheduled to take effect in April 2026. During her inaugural fiscal event, Reeves targeted several longstanding exemptions that had historically benefited farms, family-owned businesses, and shares listed on London's Alternative Investment Market.
Furthermore, the Chancellor eliminated the traditional relief on pension savings, which will become subject to inheritance tax from April 2027 onwards. These measures are expected to further inflate government receipts from the levy in the coming years.
Expert Analysis Highlights Growing Financial Impact
Wealth management professionals have expressed concern over the escalating consequences of inheritance tax for clients. Mike Winstanley, director of wealth management at Bentley Reid, observed that the current data clearly indicates the "direction of travel" for future tax hauls. "For clients, the impact is increasingly material," Winstanley emphasized. "Inheritance tax at 40 per cent is not marginal; it meaningfully alters the intergenerational transfer of wealth."
He illustrated the scale of potential liabilities by noting that estates valued between £3 million and £5 million could easily incur tax bills exceeding £1 million without careful strategic planning.
Rising Asset Prices Compound the Tax Burden
The inheritance tax figures have been further bolstered by a sustained surge in asset prices across multiple markets. Since the beginning of 2024, the FTSE 100 index of leading UK companies has appreciated by approximately 38 per cent, while the US S&P 500 index has soared 43 per cent amid intense speculation in technology and artificial intelligence sectors.
Although residential property prices have continued their steady ascent, their growth rate has been notably more subdued compared to the dramatic gains witnessed in equity markets.
Lack of Awareness Exacerbates Planning Challenges
Amit Joshi, managing director of wealth at Mattioli Woods, highlighted a critical issue surrounding inheritance tax: widespread lack of awareness among affected families. "Inheritance tax revenues continue to climb as frozen thresholds pull more families into the tax net," Joshi stated. "What is most concerning isn't the tax itself, but the lack of awareness. Families often only realise the impact when it's too late to act."
He characterized inheritance tax as "a planning issue by stealth," warning that the cost of inaction typically manifests as "lost choices, rushed decisions, and unnecessary tax" for unprepared households.
