Wealth specialists warn of risks to estate planning as IHT receipts reach record £8.5bn

As inheritance tax (IHT) receipts see a fifth consecutive year of record growth, wealth specialists are highlighting the importance of timely estate planning and taking all assets into account.

IHT receipts reached £8.5bn for the 2025-2026 tax year, up from £8.2bn the previous year, and increased by £141m between February and March 2025, when they stood at £755m.

Last year’s decision to maintain the freeze on thresholds for the £325,000 nil‑rate band and the £175,000 residence nil‑rate band until 2031 is the ‘key driver’, says Quilter tax and financial planning expert Rachael Griffin, with property prices meaning the value of the family home alone is often enough to push estates into IHT, leaving little room for other assets to be passed on tax‑free.

Unused pension pots will also be brought within the scope of IHT from April 2027.

“Further strain is already building,” said Griffin “Restrictions to Agricultural Property Relief and Business Relief from April 2026 will increase exposure for business owners and farming families, while unused pension pots will fall within the scope of Inheritance Tax from 2027, bringing what has long been the largest asset outside the estate firmly into charge. This policy change alone will turbo-charge receipts for years to come.”

“With thresholds frozen and further policy changes still feeding through, IHT bills are becoming harder to mitigate, making early planning and professional advice increasingly important,” she added.

Marc Acheson, global wealth specialist at Utmost, said the freeze on threshilds alongside the abolition of the non-dom regime and the inclusion of previously excluded property trusts within the scope of IHT, announced at the Autumn 2024 Budget, means the number of estates due to be caught by IHT is expected to double by 2030.

"While IHT receipts are ever increasing, IHT itself is a deeply unpopular tax domestically and an outlier internationally, reducing the attractiveness of long-term UK residence,” he said. “People can also plan around it while UK resident or avoid it if they move away from the UK early enough.”

Mark Lambert, head of onshore bond distribution at Chesnara Life (UK) said rising IHT receipts highlight the growing complexity of estate planning for advisers and the need to access the widest range of solutions possible.

“Many clients will need alternative solutions to pensions, and that is driving a surge in demand for the tax‑effective onshore investment bond wrapper, and associated trusts, which continue to move up the estate‑planning agenda,” he said.

“Using an onshore investment bond, particularly as a trust investment, can deliver attractive tax‑deferment and tax‑management benefits and offers features such as top‑slicing relief and 5% tax‑deferred withdrawals.

“In addition, lifetime transfers by way of assignment without consideration are generally treated as not being taxable events for income tax purposes, subject to individual circumstances and prevailing tax rules.”

Research by Wesleyan Financial Services shows nine in 10 advisers are seeing increased pension withdrawals ahead of the changes, but inheritance tax expert Nick Henshaw says some of these decisions are irreversible and risk backfiring.

“Clients are trying to reduce a future IHT bill, while triggering income tax today – and in some cases not improving their overall position,” he said.

‘For advisers, the focus has to be on modelling before action. If a strategy doesn’t improve the overall outcome after tax and risk, it shouldn’t be happening,” he added. “In volatile conditions, approaches that help manage sequencing risk – such as smoothed funds – can also play a role in avoiding poor timing decisions becoming permanent damage.

"Don’t let urgency drive poor decisions. Without proper advice, the rush to reduce IHT could leave clients worse off in retirement.”