UK Families Face Record Inheritance Tax Bills – £3.7bn In Just Months

Grieving families have paid a staggering £3.7 billion in inheritance tax (IHT) in just five months of 2025. This sharp rise, driven by frozen tax thresholds and rising property values, highlights how Britain’s so-called “stealth tax” is pulling more middle-class families into the net.

HMRC confirmed that this figure represents a 5.7% increase (£200 million more) than the same period last year. With receipts expected to hit a record £9.1 billion by April 2026, inheritance tax is quickly becoming one of the Treasury’s largest revenue streams.

Why Families Are Paying More

Inheritance tax applies at 40% on estates above £325,000, with an additional £175,000 tax-free allowance if passing property to direct descendants. However, the nil-rate band of £325,000 has been frozen since 2009, despite surging property prices.

This freeze has created fiscal drag, where even modest families — particularly in the South of England — are now facing tax bills previously associated with the very wealthy.

From April 2027, pension pots will also fall into the IHT net, adding further pressure. Meanwhile, the freeze on thresholds will remain until April 2030, ensuring many more estates are dragged in.

Inheritance Tax Receipts – 2025 Snapshot

Timeframe	IHT Revenue Collected	Change vs Last Year
April–August 2024	£3.5 billion	–
April–August 2025	£3.7 billion	+£200 million (5.7%)
Full Tax Year Forecast 2025/26	£9.1 billion	Record high

Upcoming Rule Changes

• Pension pots: From April 2027, unused pensions will be subject to IHT, disrupting retirement planning.
• Property relief: From April 2026, agricultural and business property relief will be capped at £1 million per person, ending full exemptions.
• Gifting rules review: Expected in the Autumn Budget 2025, which could restrict families from passing wealth tax-free during their lifetime.

These measures will significantly expand the scope of taxable estates, pulling in small businesses, farms, and average households.

Who Is Most Affected?

• Families with property values above £500,000 in areas with strong price growth.
• Pensioners with pension pots exceeding £325,000 from April 2027.
• Family-owned businesses and farms losing 100% relief from April 2026.
• Middle-class families unaware of IHT exposure due to frozen allowances.

Ways to Reduce an IHT Bill

1. Passing on property: Couples can pass on up to £1 million tax-free by combining allowances when leaving homes to direct descendants.
2. Lifetime gifts: Gifts made more than seven years before death can fall outside the taxable estate.
3. Annual gift allowance: Each person can give away £3,000 a year tax-free, plus unlimited small gifts up to £250.
4. Marriage gifts: £5,000 to a child, £2,500 to a grandchild, or £1,000 to anyone else before a wedding.
5. Trusts and insurance policies: Life insurance written into trust can provide funds to cover IHT bills, keeping proceeds outside the estate.

Expert Concerns

Experts warn that more than one in five families could face IHT by the end of the decade if thresholds remain frozen. The Office for Budget Responsibility predicts IHT revenues will surpass £14 billion annually by 2029/30.

The tax, once affecting only the wealthy, is now hitting ordinary families, especially those with rising property values. Estate planning has become essential for anyone wishing to protect wealth for future generations.

With £3.7 billion already collected in just five months of 2025, inheritance tax is increasingly targeting middle-class families due to frozen thresholds and rising property values.

As upcoming changes extend IHT to pension pots and restrict property relief, estate planning will be crucial to minimize future tax burdens.

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