Industry experts have voiced their concerns over HMRC’s latest statistics showing the amount raised by inheritance tax (IHT) hit another record high in 2023-24, rising 5% to £7.03bn. This £0.33bn increase is partly attributable to frozen tax thresholds and rising asset values.
Although the number of estates that paid IHT in 2023/24 fell 3.6% to 30,400, the proportion of deaths resulting in a bill continued to rise, increasing slightly from 4.62% to 4.72%.
Marianna Hunt, personal finance specialist at Fidelity International, highlighted that although fewer estates paid IHT than in the previous year, there were also fewer deaths, meaning the proportion of deaths resulting in an IHT bill still edged higher.
She added that the drop in the number of estates paying IHT is likely to be a temporary one due to the new rules coming in next April that will mean most pensions are included in the scope of IHT.
“According to the government’s own estimates that is expected to mean 10,500 more estates will be paying IHT that wouldn’t have done before and another 38,500 estates will pay more IHT than they would have done without the rule change,” she said.
“All of this highlights the importance of planning ahead when it comes to IHT.
“Fidelity’s own Longevity Revolution research found that 65% of UK adults aged 50 and over would rather retire with less money but surrounded by loved ones who have been financially supported by them, compared with 18% who would rather retire wealthy and potentially alone. Yet despite this, only 40% of people have a plan in place for passing on wealth and 46% are only planning to pass on wealth after they die.”
Lucy Woodward, private wealth partner at Saffery, warned that in addition to fiscal drag meaning more estates are breaching the nil‑rate band, the government’s changes to Agricultural and Business Property Relief and pensions falling into the IHT net from next year will mean many family businesses, entrepreneurs and savers will be faced with having to sell assets or liquidate savings to help pay a looming IHT bill.
She added the latest figures should also give pause for thought to those advocating for new forms of wealth taxation.
“If fiscal drag is already expanding the IHT base significantly, it raises a fundamental question: what does ‘wealthy’ really mean in today’s tax system? The figures suggest that frozen thresholds are achieving many of the same outcomes as a wealth tax by stealth and policymakers will need to consider whether that aligns with the policy intent, and if breaking up illiquid assets like family businesses to fund a tax bill is really a desired outcome.”
Tax director Reena Bhudia said Goodman Jones is seeing more people take a fresh look at how they plan to pass on wealth.
“We’re already seeing clients revisit arrangements that may have been in place for years,” she said, “A well-structured estate plan now considers how pensions, property, gifting and trusts interact, as well as whether an estate will have sufficient liquidity to settle any future inheritance tax liability. Although the reforms are still some way off, those who start planning now are likely to have more options than those who wait.”
Simon Martin, head of UK technical services at Utmost, said families should not wait until the changes take effect.
“The range of options available to manage a potential liability may narrow over time,” he said, “It underlines the importance of professional financial advice in helping families understand their individual situation and pass on their wealth to loved ones as efficiently as possible.”
