HM Revenue and Customs (HMRC) has released its monthly figures which show that inheritance tax receipts hit £6.3 billion in the nine months from April to December 2024.

This is £600 million higher than the same nine months last year and continues the upward trajectory over the last two decades.

In 2023-4 tax year, HMRC raised £7.499 billion, but these figures show that they are well on track to smash through this figure. Currently just 4% of estates are liable for inheritance tax, but government estimates suggest that this will increase to 10% of estates by 2030.

Nicholas Hyett, Investment Manager at Wealth Club said: “Inheritance tax continues to be something of a golden goose for HMRC – with a tax take that seems to rise inexorably. It may only affect a small number of estates at present, but that number is growing all the time - suggesting “Britain’s most hated tax” is only set to become more unpopular."

"What really gets to many people about inheritance tax is the double taxation. You’re taxed on the money when you earn it and again when you die, resulting in combined income tax and inheritance tax rate of 67% for additional rate tax payers – potentially more if you’re also paying National Insurance."

"One way to avoid the taxman having your cake and eating it too, is to make gifts out of surplus income. By making regular gifts out of leftover income at the end of the month you can pass money on to your loved ones free of inheritance tax."

"Gifts out of surplus income are particularly popular with grandparents, who use it to pay for things like school or university fees. Avoiding double taxation from inheritance tax is a nice added sweetener.”

Changes to Inheritance tax announced at the Autumn Budget included:

• An extension to the freeze on IHT thresholds, which have been frozen for a further two years (until 2030).
  

• Agricultural Relief and Business Property Relief have been reformed, meaning that from April 2026, the first £1m of qualifying combined assets will have no inheritance tax at all, but for assets overt £1m a 50% relief will apply, at an effective rate of 20%.
  

• Qualifying AIM shares will no longer have full exemption from IHT, instead from 2026 they will have an inheritance tax rate of 20% if they are held for two years.
  

• From 6th April 2027, inherited pensions could be subject to inheritance tax in addition to income tax levied on the recipient meaning passed down pensions could be taxed at an effective rate of up to 67% - subject to consultation.

What Can Investors Do To Mitigate Their Inheritance Tax Bill?

Despite recent reforms there are still ways to reduce the inheritance tax paid by your estate, although many of them do require time and more risk:

Those concerned about inheritance tax should consider:

1. Giving money away early. Gifts taken out of regular income, which are not deemed to affect the giver’s standard of living, are inheritance tax free on day one – as are certain smaller gifts. Timing is key as you can give unlimited amounts away but typically these take seven years to be completely inheritance tax free. Of course, once you give away the money you’ve lost control. If you need it back for an emergency, that’s not an option.
   

2. Investing in unlisted companies that qualify for Business Property Relief. These are typically inheritance tax free after two years. Investing in unquoted businesses can be risky, however, unlike giving the money away, you retain control. From 2026 you will have an overall £1 million Business Relief Allowance. Anything in addition will be taxed at 20%.
   

3. Investing in an AIM ISA. ISAs are not inheritance tax free. When you pass away, your loved ones could miss out on 40% of your hard-earned cash. AIM ISAs are a popular, although much riskier way, to reduce this. Currently after two years they could be IHT free. From 2026 the IHT will be halved toa rate of 20%.”