- HMRC stats shed fresh light on soaring inheritance tax (IHT) take
- The effective rate of IHT paid by estates remains steady at 13%
- Exempt transfers between spouses continue to top the list of reliefs by value
- Value of assets set against business and agricultural property relief jumps by 19% to £5.28 billion
- Labour’s death tax raid means estates will soon face higher bills as the value of reliefs and exemptions will be slashed
- The continued freeze of nil rate bands is already creating a fiscal drag effect
Charlene Young, senior pensions and savings expert at AJ Bell, comments:
“Nothing can be certain, except death and taxes. So it proves, with the taxman following hot on the heels of the grim reaper.
“Despite the introduction of a new relief – the Residence Nil Rate Band (RNRB) phased in from 2017 – government is collecting more in death taxes than ever before and the tax take has more than doubled in a decade. The proportion of estates paying IHT is now back at the same level seen before the introduction of the RNRB, but rather than offset that by adding a new exemption or increasing the existing ones, the chancellor is set to slash exemptions instead.
Source: HMRC/AJ Bell. Tax receipts and National Insurance contributions for the UK, July 2025
“HMRC’s deep dive into estates and inheritance tax shows that although the main rate of IHT is 40%, the effective rate of tax paid by estates remained steady at 13% thanks to the reliefs on offer. The proportion of estates paying IHT jumped again to 4.62%, equal to the previous high seen in 2016/17, when the extra nil rate band for family residences was first introduced.
“These detailed figures only go back to the 2022-23 tax year, but they give an insight into the value of IHT reliefs and exemptions and how wealthy families have been using them.
“HMRC proudly states that fewer than half of deaths currently require interaction to establish if there is tax to pay – something that will soar when the IHT raid on family businesses, farms and pensions comes into force.
“Rachel Reeves’ first budget in October 2024 tore into the exemptions enjoyed by family businesses, farms and pensions. Starting from April 2026, wealth that has been completely sheltered from IHT will start to be included in people’s estates for IHT.
Frozen nil-rate bands drag more estates into tax
“In a double whammy for many estates – the Chancellor also continued the big freeze on both the nil rate band and residence nil rate band until at least 2030.
“Whilst IHT reforms might shatter the plans of families looking to pass on future wealth, the effect of what will be a twenty-year freeze on both key allowances for families is already showing its teeth, with more estates than ever paying IHT. In 2022-23 the number jumped to 31,500, an increase of 13% for the year.
“Everyone can pass on up to £325,000 before any IHT is due, although this IHT nil rate band has been frozen since 2009. The residence nil rate band (RNRB) has been available since 2017 and gives a boost of up to £175,000 per person if a property is left to their direct descendant(s). A combination of these bands means most couples can pass on up to £1 million on second death. But had both bands been uprated with inflation rather than being frozen in 2020, a couple would currently pass on an estate worth £1,448,000 combined, a figure which could rise to around £1.6m by the time the freeze is due to end.
Source: AJ Bell
The effective rate of IHT paid by estates
“Aside from the universal nil rate band, and the potential to use the additional residence option to increase it, investors can make plans in their lifetimes to benefit from reliefs and exemptions when they die and pass on wealth.
“Although the headline rate of IHT is 40%, a combination of the reliefs means the rate of tax paid is much lower. This is illustrated in the effective tax rates paid by estates with an IHT liability.
Source: HMRC, average effective rate of tax paid by taxpaying estates, split by net estate value
“The effective rate starts to rise as the value of the estate goes up. The families paying the largest death duties to the taxman are found in the £3 million to £5 million bands, where they hand over more than 25% in tax.
“Whilst estates up to £2 million can make most use of the reliefs and allowances, the RNRB starts to taper down for estates over £2million, until it is lost altogether from £2.7 million upwards.
“The effective rate starts to trend down for the largest estates, which are the most likely to use reliefs for business property and agricultural assets, where restrictions will begin to apply from 6 April 2026.
Value of reliefs – with spousal transfers topping the list
“The largest exemption continues to be for transfers between spouses and civil partners. Any gifts you make to your spouse or civil partner in your lifetime or on your death are exempt from IHT, assuming they are also a UK long term resident. Crucially though, this exemption doesn’t apply to gifts between unmarried partners, even if you have lived together for many years.
Value of business and agricultural reliefs jump – with reform around the corner
“The value of agricultural and business property relief (BPR) combined soared by 19% in the year, saving wealthy families from paying IHT on around £5.28 billion of assets in 2022/23.
“Most of this increase was down to a rise in the value of BPR, which was worth £3.34 billion and used by 3,840 estates, making it the second most valuable of all the IHT reliefs. Full IHT relief has been available for the business assets of trading companies held for over two years before death, with land and machinery benefiting from a 50% reduction in taxable value. These reliefs mean family-owned businesses are not faced with the pressure of stopping trading or being sold to fund IHT bills. Reliefs available for agricultural property operate in a similar way.
“But from 6 April 2026, there will be a cap on the full value of these reliefs. A £1 million allowance will apply for full relief on combined assets that qualify for BPR or APR, with a lower 50% rate of relief above this limit. Shares on the UK AIM market and similar foreign exchange rates that previously qualified for 100% relief will see this restricted to 50%.”
