HMRC has reported £1.5 billion in Inheritance Tax (IHT) receipts for April–May 2025, up £98 million year-on-year. Over the past 12 months, IHT revenue reached £8.35 billion—an increase from £7.68 billion the year prior. The continued rise reflects growing estate values and frozen thresholds amid inflation.
Charlotte de Vries, director at EXE Capital Management, the Exeter-based wealth planning firm, said:
“We shouldn’t be surprised that Inheritance Tax (IHT) receipts keep rising. Freezes on thresholds over the past few years together with decades of house price rises have brought more and more estates into the tax band. The HMRC’s inheritance tax take will only rise further as more people’s estates will face the death tax. Not only does the IHT threshold remain frozen until 2030 but changes announced by the Chancellor, Rachel Reeves in the Budget will begin to bite after April 2027. From then on, pensions and agricultural assets worth more than £1million will also be subject to IHT.”
On the non-dom rumours, Charlotte added: “Once bitten, twice shy. It will take a lot more than a reversal of the non-dom rules to encourage those who have already left to return and those considering leaving will be wary of the muddled and unreliable thinking of this government. If the Government wants to reverse the decision, it needs to look at the wider malaise within the UK and reconsider its unthought-out Capital Gains Tax and Inheritance Tax attack on entrepreneurs and farmers.”
Four ways to reduce your IHT bill*
Business Relief and Discretionary Trusts
There is still time before 5 April 2026 for family-run businesses to pass shares into a discretionary trust for their children and grandchildren. Providing the business has traded for two years and qualifies for Business Relief (BR), shares of unlimited value can pass free of IHT under the BR rules without an immediate IHT tax liability. Whilst Rachel Reeves’s announcement to changes to BR deferred much until next year, one immediate change was that any gift to the trust requires the settlor to survive seven years to be effective for unlimited relief, whereas before it was immediately exempt. This can be remedied by covering the possible tax with life assurance. The transfer of shares to a discretionary trust will be liable to Capital Gains Tax but this can be rolled over into the trust.
Family Investment Companies
For those who have sold their business and no longer qualify for BR, or wealthy individuals, the Family Investment Company (FIC) is an attractive option. It allows parents to lend an unlimited amount of cash to a new company with shares divided between themselves and their children. A shareholder agreement can ensure the parents retain control. Whilst the loan remains part of the parent’s estate, growth on the children’s shares will be outside of the parent’s estate. Furthermore, the parents can subsequently gift part or all of the loan to their children which will then fall out of their estate over 7 years (potentially exempt transfer rules). Whilst the FIC gets the shares outside of the parent’s estate, they do end up in that of the children. This differs from a discretionary trust which keeps the assets outside of the children’s estate, but an individual is limited to how much can be passed to a trust without an immediate tax liability by the Nil Rate Band, currently £325,000, whereas no such limit applies to a FIC.
Grandparent’s Educational Trusts
With the cost of private education ever increasing no thanks to Labour’s imposition of VAT on fees, a Grandparent’s Educational Trust is a very tax-efficient way of helping. The grandparent invests in an offshore investment bond which has the benefit of rolling up free of personal income and capital gains tax. Assigning the bond to a Bare trust for the grandchildren allows the trustees to distribute sums to meet the fees using the grandchild’s personal income tax allowances and rate to offset any gains. The assigned bond will be a PET and fall outside of the grandparent’s estate after seven years. Offshore bonds cannot be held by minors hence the need to assign to a Bare Trust.
Transfer the family home
It is also possible to transfer part or all of the family home to the children or grandchildren. Any transfer is exempt from capital gains tax (CGT) under the Principle Private Residence exemption and the gift will fall outside of the estate under the current seven-year rule. However, to work, a commercial rate of rent must be paid by the parent, or it will fail under the gift with reservation of benefit rules. One issue is that the rent is taxed twice to income tax, firstly as it is paid by the tenant from taxed income and secondly in the hands of the new owner as income. A possible way around this is to grant a reversionary lease whereby only a pre-owned asset charge would apply which could also be less than the rental costs. But every case must be assessed on its merits and there are many things to consider, not least that gifting your house means someone else owns it.
