Inheritance tax bills are hitting more families than ever, with growing numbers being pulled into the net.
With receipts now at record levels, many households are looking for ways to reduce what they pass on to HMRC.
The Government collected a record £8.5billion in inheritance tax in the 2025/26 tax year, up £200million on the previous year.
This continues a steady rise over recent years. Receipts were £5.3billion in 2020/21, increasing to £6.1billion in 2021/22, £7.1billion in 2022/23, £7.5billion in 2023/24 and £8.2billion in 2024/25.
One of the main reasons is frozen tax thresholds. The nil-rate band has been stuck at £325,000, while the residence nil-rate band remains at £175,000, with both frozen until 2031.
At the same time, property prices, particularly in London and the South East, have continued to rise.
In many cases, the value of a family home alone now exceeds these thresholds, meaning more estates are being pushed into paying inheritance tax, even before other assets are taken into account.
Rachael Griffin, tax and financial planning expert at Quilter, said: "What was once seen as a tax on only the wealthiest families is now firmly a middle-income issue.
"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."
The burden on estates is set to grow heavier still. From April 2027, unused pension pots will be brought within the scope of inheritance tax for the first time, capturing what has traditionally been the largest asset held outside an estate.
inheritance tax affects only around four per cent of families | GETTY Sarah Coles, head of personal finance at AJ Bell, warned that this single change is expected to pull 10,500 additional estates into the IHT net that year. A further 38,500 estates already liable will see their bills increase, with the average rise amounting to £34,000.
Business owners and farming families face additional pressure from this month, as restrictions to Agricultural Property Relief and Business Relief have now taken effect, increasing their exposure to the tax.
Despite more families being drawn into inheritance tax, many remain unclear on how the rules work. Research from Canada Life shows that 59 per cent of UK adults find IHT confusing, while just six per cent say they fully understand it.
This lack of understanding could prove costly. Only 15 per cent feel confident about how much they can give away each year without it counting towards their estate.
In reality, larger gifts can fall outside of an estate for tax purposes if the person making the gift lives for at least seven years
| GETTYWhen asked about the annual tax-free gifting allowance, just a quarter correctly identified the £3,000 limit, while 74 per cent either got it wrong or did not know. One in ten wrongly believe that all gifts are automatically exempt from inheritance tax.
There is also widespread confusion around the seven-year rule. More than half of respondents, 57 per cent, said they either had not heard of it or did not understand how it works, while only 27 per cent said they fully grasped it.
In reality, larger gifts can fall outside of an estate for tax purposes if the person making the gift lives for at least seven years. If they die sooner, the gift may still be taxed, with the full 40 per cent rate potentially applying within the first three years.
Understanding these rules can make a significant difference. The £3,000 annual allowance can be given to one person or split between several, and any unused allowance from the previous year can be carried forward.
More broadly, individuals can make use of inheritance tax thresholds, including the £325,000 nil-rate band and the £175,000 residence nil-rate band when passing on a home to direct descendants. Married couples can combine these allowances, potentially passing on up to £1million tax-free.
Gifting assets during a lifetime is another common way to reduce a future bill
| GETTYGifting assets during a lifetime is another common way to reduce a future bill, but it must be done properly. If someone continues to benefit from an asset after giving it away, it may still be counted as part of their estate.
Other options include leaving money to charity, which is exempt from inheritance tax and can reduce the rate from 40 per cent to 36 per cent if at least 10 per cent of the estate is donated. Some families also consider trusts or certain investments to move assets outside their estate, although these can be complex and often require professional advice.
John Chew, tax, trusts and estate planning expert at Canada Life, said: "The earlier families start to plan, the more scope they have to use allowances and exemptions, make gifts in a tax efficient way, and structure their affairs so that more of their wealth goes to loved ones."
He stressed that professional financial advice has become essential given the complexity of the rules and the growing number of estates likely to face charges.