Inheritance Tax Expansion: HMRC Collects £100 Million More from Bereaved Families
The United Kingdom's most dreaded tax, inheritance tax, has generated an additional £100 million from bereaved families, according to recent figures. Experts are now cautioning that this levy is no longer confined to the "mega wealthy," as more households find themselves caught in its net.
Record Revenue and Fiscal Drag
Data released by the Labour Government reveals that HMRC collected £7.7 billion from inheritance tax between April 2025 and February 2026. This marks a significant increase of £100 million compared to the same period in the previous year. The figures underscore a trend of expanding tax reach, driven largely by fiscal drag rather than sudden wealth accumulation.
Ian Dyall, head of estate planning at wealth management firm Evelyn Partners, emphasized that inheritance tax has evolved into a mainstream concern. "The expansion of IHT is not a result of sudden shifts in wealth, but rather years of fiscal drag," Dyall explained. "Nil rate bands have been frozen for many years while asset values, particularly property, have continued to inflate."
Upcoming Reforms and Tightening System
Despite upcoming changes to inheritance tax rules, including reforms set for April 2027 under Chancellor Rachel Reeves, experts predict a tightening of the system. Shaun Moore, a tax and financial planning expert at Quilter, noted that while adjustments to farming inheritance tax may begin to shift the framework, the overall direction remains restrictive.
"IHT is certainly no longer a tax aimed only at the mega wealthy," Moore warned, highlighting the broader impact on families across the UK. The data suggests that the Labour Government is on track for another record-breaking year in inheritance tax revenues for the 2025/26 financial year.
Current Tax Structure and Frozen Thresholds
The inheritance tax system currently imposes a 40 percent charge on estate values exceeding the nil-rate band of £325,000 per individual. An additional residence nil-rate band of up to £175,000 applies when a family home is passed to direct descendants, such as children or grandchildren.
Married couples can combine their allowances, allowing for tax-free transfers of up to £1 million. However, these thresholds are frozen until at least 2030-31, ensuring that fiscal drag continues to pull more estates into the tax bracket as asset values rise.
This ongoing freeze means that even modest increases in property prices or other assets can push families over the tax-free limits, making inheritance tax a growing concern for a wider segment of the population. The combination of stagnant allowances and inflating values creates a perfect storm for increased tax liability.
