The shifting inheritance tax landscape has resulted in a notable uptick in anxiety

Inheritance tax receipts have continued their upward trajectory, with the latest data highlighting ongoing fiscal drag from frozen thresholds and upcoming reforms set to widen the net further. Lisa Caplan, Director of Charles Stanley Direct Advice and Guidance, part of Raymond James Wealth Management, comments on what the shifting landscape means for estate planning strategies.

Inheritance Tax receipts for April 2025 to March 2026 are £8.5 billion, which is £0.2 billion higher than the same period last year, an increase of 2.4%.

The upward momentum of IHT receipts continues as increasing numbers of estates fall into the net and the overall burden increases owing to frozen allowances. While estates have increased in value over the years, the nil rate band has not been re-rated since 2009, and it is set to remain in the deep freeze until at least April 2031. The residence nil rate band, phased in from 2017, has helped offset the relentless fiscal drag, but that too has been static since it reached £175,000 in 2020/21.

Unfortunately, for many ordinary families, the situation is going to get worse as a step change to the inheritance tax regime kicks in. The OBR forecasts that IHT receipts will hit £14bn by 2030 owing to the changes affecting pension, business and agricultural assets as well as a freezing of the nil rate bands.

Importantly for most families, from April next year, unused pension pots will be included in the valuations of estates, and this will result in more tipping over the nil-rate thresholds. Anyone with significant pension wealth needs to urgently review their planning, especially if they had previously planned to leave pension assets to anyone other than their spouse.

Beneficiaries stand to face a double whammy of income tax and inheritance tax on pension assets left to them, assuming the donor passes away over the age of 75.

The shifting inheritance tax landscape has resulted in a notable uptick in anxiety. With some simple planning there may still be no IHT liability if an estate of a married couple is less than £1 million, but the sooner you think about your position and what you want to do with your legacy, the better. As time goes on, the choices available to preserve more wealth tend to narrow.

What can people do to reduce the impact?

Gifting and spending

With pensions set to form part of the estate, doing nothing is no longer an option for a growing number of families. One of the simplest ways to reduce future tax is to start gifting earlier, using annual allowances and surplus income rules where possible. Helping fund the next generation’s pension or ISA contributions, or even skipping a generation to fund Junior ISAs, can be excellent intergenerational strategies. Plus, they can allow your family to benefit from the money when they need it most.

There are two simple ways in which gifts can help with IHT planning.

The first is by giving an outright gift of money. Anyone can give away £3,000 tax year free of potential inheritance tax, and you can make any number of smaller gifts of up to £250 per person a year. Over and above the various gifting allowance, all gifts are “potentially” exempt.

Potentially because you must live for a further seven years before the gifts are fully outside your estate. If you die within this time frame, a sliding scale is used to calculate how much tax is due on any amount over the nil rate band.

The second is to use the “surplus out of income” rule. You can make any number of small gifts provided they do not affect your ability to fund your lifestyle. If you have to draw on any capital from your savings and investments to help you get by, the tax man will regard the gifts as having come from your reserves. And make your estate pay tax on them.

This requires good record-keeping to demonstrate when the gifts were made and how they were genuinely from income you didn’t need for day-to-day spending.

For those with the means, sensible spending in retirement can also make sense. Money sitting untouched risks becoming a tax problem later, whereas money enjoyed or passed on during your lifetime can make a meaningful difference to both you and your family.

Trusts

With pensions losing their special status, trusts are back in focus for intergenerational planning, but they are not a silver bullet. They require care, foresight and professional expertise to get right. Otherwise, the cost can outweigh the benefit, or there can be a loss of flexibility for little gain.