News & Events
Why inheritance tax (IHT) planning is more important than ever
15th May 2025
HM Revenue and Customs (HMRC) recently revealed that Inheritance Tax (IHT) receipts reached an all-time high of £8.2 billion between April 2024 – March 2025, a significant increase of 10.8% compared to the previous year. This rise in IHT receipts is part of a larger trend that has seen the tax burden on estates continue to grow, largely due to frozen tax thresholds and increasing asset values. As the number of estates subject to IHT grows, it is more important than ever for individuals and families to take proactive steps to manage their estate planning. In this article Rowleys’ Head of Tax, Mark Hook, shares more about why inheritance tax planning is more important than ever and the key things to consider.
Why is IHT planning crucial?
Frozen thresholds and increasing asset values
The key driver behind the rise in IHT receipts is the continued freeze on the IHT nil-rate bands (NRB and RNRB), which have not been adjusted for inflation or the rising value of assets. As property values and investments increase, more estates are falling above the IHT threshold, resulting in more families becoming liable for this often-overlooked tax. According to the Institute for Fiscal Studies, by 2029-30, the share of estates liable for IHT will reach its highest level in over 50 years.
The impact of pensions and reliefs changes
In addition to the freeze on thresholds, significant changes are also on the horizon. From 2027, unspent pension funds will be included in IHT calculations, further increasing the tax liability for many estates. Agricultural Property Relief (APR) and Business Property Relief (BPR) are also being reduced, which could place more family-owned businesses and agricultural estates under pressure.
The situation is further complicated by the possibility of additional IHT reforms in response to the UK’s financial challenges, including potential recessions or increased government borrowing costs. These changes could make the process of gifting and setting up trusts more restrictive, which makes strategic planning even more important.
The need for effective IHT planning
As more estates are affected by IHT, it is essential to plan carefully in order to reduce the tax burden. Below are a few tips for effective IHT planning:
- Maximise the use of allowances
It is crucial to make full use of all available allowances while you can. This includes the annual gift allowance, which allows you to make gifts up to a certain value each year without incurring IHT. Starting early and gifting regularly can reduce the value of your estate, helping to minimise potential IHT liabilities. - Make use of trusts
Trusts can be an effective tool in reducing IHT. By placing assets into trust, you can remove them from your estate, and they may no longer be subject to IHT. This requires careful planning, as the rules around trusts are complex. A professional advisor can help you select the right type of trust for your needs. - Review your Will regularly
Regularly reviewing your Will is essential to ensure that it reflects your current financial situation and your wishes. As asset values increase, it’s important to understand how your estate will be distributed and how this impacts your IHT liability. - Consider lifetime gifts
Lifetime gifts, when planned effectively, can help reduce your estate’s value and lower the potential IHT due on your estate after death. However, be mindful of the rules regarding gifts, including the seven-year rule, which means that gifts made within seven years of death may still be subject to IHT. - Utilise business and agricultural property relief
If you own a business or agricultural property, these reliefs can offer significant IHT savings. However, as these reliefs are expected to be reduced in the coming years, it’s important to plan early and ensure that you are making the most of these allowances while they are still available. - Plan for pensions and retirement funds
With the inclusion of pension funds in IHT calculations from 2027, it’s essential to think about how your retirement assets are structured. Consider taking financial advice to explore options such as pension withdrawals or the creation of pension trusts to ensure that these assets do not unexpectedly increase your IHT liability.
The rise in IHT income is a clear indication that this tax is becoming an increasing concern for families across the UK. With frozen thresholds and changes to reliefs and exemptions, the need for proactive IHT planning has never been greater. By taking steps to maximise allowances, set up trusts, review your will, and plan for the future, you can reduce the financial burden of IHT on your loved ones.
Given the possibility of further reforms, now is the time to take action to ensure that your estate is structured in the most tax-efficient way possible. Seeking professional advice will help you navigate the complexities of IHT planning and ensure that your wealth is passed on to your beneficiaries in the most effective way, with as little tax liability as possible.
For help with IHT planning, please get in touch with our friendly team.