Families could save over £300,000 with key inheritance tax loophole as HMRC rakes in a record £1.5billion

New analysis from St. James’s Place, wealth management firm, reveals potential savings of up to £315,330 for higher rate taxpayers who utilise a key inheritance tax strategy at age 75.

These substantial savings come as inheritance tax receipts (IHT) continue their upward trajectory. The latest HMRC data shows IHT receipts reached £1.5 billion for the period from May 2024 to April 2025, marking a £98 million increase compared to the previous year.

The growing tax burden affects an increasing number of families across Britain. With inheritance tax thresholds frozen until at least April 2030, more estates are being caught in the tax net.

Kerry Drysdale Head of Holistic Planning at St. James's Place explained how an individual using Trusts can be a great way to cut thousands off one's bill.

She said: "Larger gifts of surplus capital can be considered to cut your bill if you have sufficient resources to sustain your own lifestyle.

"This could be an outright gift to a chosen beneficiary or a gift into trust which provides you with more flexibility and control over who receives what and when.

"Through careful financial planning and budgeting, reducing - or even eliminating - any potential charges for beneficiaries is possible and will allow you to enjoy seeing your beneficiaries put these gifts to good use during your lifetime."

When assets are placed into a Trust and certain conditions are met, legal ownership transfers from the individual to the Trust itself. The assets then sit outside the person's estate for inheritance tax purposes.

This means the value of those assets is typically excluded when calculating the IHT bill upon death. The cash, investments or property are treated as belonging to the trust rather than the individual.

This creates a legal structure that places assets beyond the scope of inheritance tax. It's an approach often viewed as a loophole within the current system that enables families to pass on more wealth whilst reducing tax liability.

St. James's Place calculations demonstrate the scale of potential savings through strategic trust planning. For basic rate taxpayers with a £1 million pension fund, the inheritance tax bill at age 100 would reach £448,571 without any gifting strategy.

However, by gifting available tax-free cash into a trust at age 75, this bill falls to £179,170 - a saving of £269,401. This approach also results in £127,698 more being passed to loved ones.

Higher rate taxpayers see even greater benefits. Without gifting, their IHT bill would total £558,831. By placing tax-free cash into a trust at 75, the charge drops to £243,501, saving £315,330. The total passed to beneficiaries increases by £71,243. These figures assume four per cent investment growth and no other assets.

Rachael Griffin, tax and financial planning expert at Quilter, emphasises the importance using Trusts. She said: "Utilising trusts is a good way of getting money out of your estate while still having a degree of control over how it is spent depending on the type of trust."

She added: "For those concerned about inheritance tax, lifetime gifting also remains a highly effective tool, but it must be carefully weighed against one's own future financial needs."

With inheritance tax thresholds frozen until at least April 2030, more estates are being caught in the tax net. The nil-rate band and residence nil-rate band remain unchanged despite rising property values and inflation.

Drysdale warned: "With inheritance tax thresholds failing to keep pace with inflation and pensions being brought into scope, more estates are likely to fall into the IHT net - creating unexpected tax burdens for beneficiaries."

The freeze means families face higher tax bills without any increase in actual wealth. Property values remain elevated across much of Britain, pushing more modest estates above the threshold.

Future pressures on inheritance tax look set to intensify. From April 2027, unused pensions will be included in estates for IHT purposes. Business and agricultural reliefs face tightening restrictions.

With thresholds remaining frozen and reliefs under review, the cost of inaction continues to rise.

Drysdale outlines several ways individuals can pass on wealth more efficiently:

• Annual exemption: Up to £3,000 per year can be gifted tax-free, or £6,000 if the previous year’s allowance is unused.
• Small gifts: Up to £250 per recipient each year, as long as no other exemption applies.
• Gifts from income: Unlimited gifts allowed if made regularly, from income, and without affecting the giver’s standard of living.
• Wedding gifts: Parents can give £5,000, grandparents £2,500, and others £1,000.
• Charitable and political gifts: Unlimited gifts to qualifying charities or political parties are fully exempt from IHT.