Inheritance Tax Hits Families Hard as Treasury Revenues Surge
Over the past few months, a growing story has been making waves – inheritance tax has quietly become one of the Treasury’s most powerful cash cows. In fact, grieving families have paid an astonishing £3.7 billion in inheritance tax in just the first five months of this tax year. That figure is £200 million higher than the same period last year, which shows just how sharply this tax take is climbing.
Now, for anyone unfamiliar, inheritance tax – often called IHT – is charged at 40% on the portion of an estate worth more than £325,000. If a property is being left to children or grandchildren, there’s an additional allowance of £175,000. But here’s the catch: that £325,000 threshold, known as the nil-rate band, has been frozen since 2009. While wages and prices have moved on, this limit has stayed exactly the same. What that means is more and more ordinary families, especially those in parts of the country where property values have risen sharply, are being pulled into the tax net. It’s what experts call “fiscal drag.”
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And the Treasury isn’t slowing down. According to the Office for Budget Responsibility, inheritance tax receipts are on course to hit a record £9.1 billion this year. By 2030, forecasts suggest more than £14 billion could be collected annually. It’s being said that middle-income families, who never imagined they’d be facing hefty inheritance tax bills, are increasingly caught up in it.
The pain doesn’t stop there. From 2027, unused pension pots will also be included in taxable estates. That change alone is expected to raise around £1.5 billion by the end of the decade. And for family businesses and farms, the news is just as tough: agricultural and business property reliefs, which previously shielded assets from tax, will be capped at £1 million per person starting next year. Financial planners warn that this could make things especially hard for modest family firms trying to pass wealth down to the next generation.
So, what’s driving all of this? Quite simply, the Government is under immense pressure to plug a widening fiscal gap. With other tax rises ruled out, inheritance tax has become a reliable way to boost revenues. Industry experts even describe it as a “stealth tax,” one that grows silently as property values rise while thresholds stay frozen.
But this isn’t just a story about Treasury coffers filling up. For families, the impact is emotional as well as financial. At a time of grief, being handed a large tax bill adds another layer of stress. Advisors stress the importance of planning ahead – whether that’s through early gifting, life insurance trusts, or simply keeping track of estate values. Because while only about one in twenty estates pays inheritance tax today, that number is expected to rise significantly in the years ahead.
In short, inheritance tax is no longer something that only the very wealthy need to worry about. It’s a growing reality for middle-class families, and unless reforms are made, its reach will only expand further.
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