Government rakes in £8.5 billion in Inheritance Tax

HMRC collected a record £8.5 billion in Inheritance Tax (IHT) in the 2025/26 tax year, more than double the £3.5 billion collected in 2006/2007.

The main tax-free allowance of £325,000 hasn’t changed since 2009 and the residence nil-rate band, which allows you to leave up to £175,000 of the value of your home tax-free to direct descendants, hasn’t changed since 2020. If you’re married, or have a civil partner, you can leave your entire estate to your spouse or partner free of inheritance tax.

With both the main allowance and residence nil-rate band frozen until at least April 2031, it is expected that the Treasury will continue to rake in a record amount of Inheritance Tax in the coming years.

Nick Henshaw, Head of Intermediaries Distribution at Wesleyan, said: “A rise in receipts comes as little surprise given the continued freeze on thresholds, elevated property values and significant wealth being passed between generations. While monthly figures can fluctuate, the long-term trend is clear: many more families and individuals will find themselves within the scope of inheritance tax over the coming years.”

The amount collected each year in Inheritance Tax had already been on the rise, thanks
mainly to the rising value of property across the country. This led to more estates being valued at over the £325,000 threshold.

However, despite house price growth starting to slow, with inflation still higher than the government’s 2g and the government desperately looking for ways to alleviate debt and combat the cost of living crisis, it’s almost certain that Inheritance Tax receipts will climb with each passing year.

They recently reached their highest monthly level on record, according to HMRC, with the Treasury collecting £2.3 billion between April and June 2026, £96 million more than during the same period last year.

“Thousands more families every year are being drawn into the scope of IHT, a trend that will be amplified by the inclusion of unused pension assets in estates from April next year,” said Ian Dyall, Head of Estate Planning at wealth management firm Evelyn Partners.

“That step is expected to draw about 31,200 more estates into the scope of IHT by 2030, and about 121,500 estates will face a surge in IHT liabilities. Total IHT liabilities are expected to soar 67% by 2030/31.”

You can find out more about pensions and inheritance tax in our articles Inheritance tax and pensions: what’s changing in 2027 and 5 ways to beat pension Inheritance Tax Budget changes.

Maike Currie, VP Personal Finance at PensionBee, said: “For some households, pensions have done two jobs: providing an income in retirement while also helping pass wealth to the next generation. Bringing most unused pension funds within the scope of inheritance tax from next April changes that equation and is prompting many people to rethink both their retirement and estate planning.

“Andy Burnham inherits difficult public finances and a nation fatigued by a high cost of living challenge. He has already hinted at reviewing the long-running freeze on the income tax personal allowance as he looks to find ways to ease pressure on UK households. For some families, pensions could also become subject to both inheritance tax and income tax. Depending on when someone dies and who inherits their pension, beneficiaries may face inheritance tax on the estate and then income tax when they draw money from the pension.”