IHT liabilities hit £7bn despite fewer estates paying

Inheritance tax (IHT) liabilities reached a record £7.03bn in 2023/24 despite a fall in the number of estates paying the charge, new HMRC figures show.

Liabilities increased by £330m, or 5%, from £6.70bn in 2022/23. The average bill among taxpaying estates also rose by 9%, from £212,000 to £231,000.

The number of estates facing an inheritance tax charge fell by 3.6% over the year, from 31,500 to 30,400.

However, these estates represented 4.72% of UK deaths, up from 4.62% the previous year and the highest proportion since 2006/07, when the figure reached 5.96%.

The proportion increased because the total number of UK deaths fell more sharply, from 683,000 to 644,000.

HMRC attributed the record liabilities to a combination of wealth transfers following liable deaths, rising asset values and frozen tax-free thresholds.

Claire Trott, head of advice at St James’s Place, said: “Although inheritance tax still affects fewer than one in 20 estates, the proportion of deaths resulting in a charge and the total amount due continue to rise.”

She said rising asset values and frozen thresholds meant people could find themselves facing a liability even if they did not consider themselves particularly wealthy.

The main inheritance tax nil-rate band has remained unchanged at £325,000 since 2009. The residence nil-rate band, available when a home is passed to direct descendants, has been held at £175,000 since 2020/21.

The Office for Budget Responsibility expects inheritance tax receipts to reach £13.7bn in 2029/30 and £14.7bn the following year.

These include changes to agricultural and business property relief that took effect in April 2026 and plans to bring most unused pension funds and death benefits within estates for inheritance tax purposes from April 2027.

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The effects of these measures are not reflected in HMRC’s latest figures, which cover deaths in 2023/24.

Utmost head of UK technical services Simon Martin said: “The inexorable rise in the proportion of estates facing inheritance tax shows how a tax once associated primarily with only the very wealthy is now affecting a growing proportion of families as frozen thresholds continue to bite.”

Martin said this trend was likely to accelerate as the reforms took effect and warned that families could have fewer planning options if they delayed acting.

He added: “Families should not wait until these changes take effect, as the range of options available to manage a potential liability may narrow over time.”

Goodman Jones tax director Reena Bhudia said clients were already reconsidering longstanding arrangements in anticipation of the reforms.

She said: “We’re already seeing clients revisit arrangements that may have been in place for years.

“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.”

Trott stressed that reducing tax should not come at the expense of an individual’s financial security, particularly given the potential cost of later-life care.

She added: “The inclusion of most unused pension funds within estates for inheritance tax purposes from April 2027 will add another layer of complexity.

“It will make it increasingly important to consider pensions alongside property, savings and investments as part of one joined-up estate plan.”