HM Revenue and Customs (HMRC) has collected a substantial £5.8 billion from inheritance tax (IHT) in the first eight months of the current tax year. This figure, covering April to November 2025/26, represents an increase of £84 million compared to the same period last year, highlighting the tax's growing contribution to Treasury coffers.
The 'Quiet' Revenue Raiser: How Freezes Drive Growth
Financial experts point to prolonged threshold freezes as the primary engine behind this rising revenue. Isaac Stell, an investment manager at Wealth Club, described IHT as one of the government's "most dependable revenue raisers." He noted that while it brought in £8.3 billion annually at the start of the current Parliament, forecasts suggest this will soar to £14.5 billion by 2030/31.
The key drivers are the frozen Nil Rate Band and Residence Nil Rate Band, set at £325,000 and £175,000 respectively. Initially frozen until April 2030, the recent Budget extended this freeze for an additional year, locking the thresholds until April 2031. "Had these thresholds risen with inflation, far fewer estates would be paying any inheritance tax at all," Stell observed, describing the process as a form of 'fiscal drag'.
Business Relief Changes and a Welcome Reversal
The government has applied a similar strategy to certain tax reliefs. A new £1 million allowance for 100% Business Property Relief (BPR) and Agricultural Property Relief (APR), due to start in April 2026, will also be frozen until April 2031. This represents a significant restriction compared to the previous, uncapped system.
However, the Budget did include one positive adjustment for families. The government confirmed that this £1 million allowance will now be transferable between spouses and civil partners. "That change removes the pressure many families felt to ‘use up’ the allowance on first death and brings BPR and APR more into line with other inheritance tax allowances," Stell explained.
Running Out of Road: The Limits of Stealth Taxation
Analysts suggest the government's approach of relying on freezes and subtle extensions is reaching its practical limit. "Taken together, these measures show a government that is still squeezing more revenue out of inheritance tax, but is running out of subtle ways to do it," Stell commented.
He issued a broader warning about the sustainability of such tactics: "Freezes, restrictions and quiet extensions in the form of Fiscal Drag can only go so far. There is only so much more that can be raised through this way. That reality applies well beyond IHT. At some point, if the government wants more money, it will have to be honest with voters and raise taxes openly and in doing so run the risk of losing votes in the next election."
The rising IHT receipts underscore a continuing trend where static tax bands, combined with rising asset values and inflation, pull more households into the tax net—a 'quiet but reliable' method of boosting Treasury revenue without explicit rate increases.
