The government’s inheritance tax (IHT) receipts are on course to “smash through” the £8bn level this tax year to around £8.5bn, according to Charles Stanley.

This represents a 40 per cent increase compared to just three years ago, following the publication of the first seven months of HMRC data for the current tax year.

October’s receipts of £776m were around two-thirds higher than the same month in 2021, and it is estimated that IHT receipts could reach £8.5bn for the tax year as a whole.

This follows previous record-breaking years in 2021/22 (£6.1bn), 2022/23 (£7.1bn), and 2023/24 (£7.5bn).

Charles Stanley noted that receipts were increasing due to the continuation of ‘fiscal drag’: the freezing of IHT nil rate bands while asset prices rise.

The bands have been frozen since 2020/21 amid increases in prices and property values.

The effect of fiscal drag is set to continue, Charles Stanley said, with the government announcing that the bands will be frozen until 2030 at last month’s Budget.

Furthermore, pensions being brought into scope of IHT from 2027 and a cap on agricultural and business reliefs from 2026 could double the number of estates paying IHT.

Charles Stanley stated that the measures announced in the Budget meant that the death tax take was set to “balloon in an unprecedented fashion” in future years.

“The IHT net is closing from several different directions simultaneously,” the firm said.

“The resulting more restrictive landscape with far fewer IHT reliefs and exemptions means early and well-executed financial planning will be essential to mitigate the impact.

“While pensions continue to have the benefits of lifetime tax efficiency (25 per cent) tax free cash and tax-free investments returns), they are set to become unattractive as an estate planning tool in many circumstances.

“Accelerated withdrawal from pension pots to fund gifts could be more beneficial from an IHT planning perspective, but overall tax efficiency from an income tax perspective will also be a factor.

“Meanwhile, earlier planning and extra thought around the use of gifting allowances and lifetime transfers have become more relevant.

“Overall, it highlights the need for financial plans to be adaptable to the prevailing conditions. For some, the changes to the IHT regime will mean the need to rethink existing strategies before they take effect. For others, it’s a case of having to make specific IHT plans for the first time.”

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