Inheritance tax warning: 'Baby boomers' at risk of being hit with 40% tax charge as HMRC receipts rise

The latest IHT figures are £83million higher than the same period last year, representing an annual increase of 4.1 per cent.

As it stands, the nil band rate on inheritance tax is set to remain in place until 2028, as set by former Chancellor Jeremy Hunt.

So far, the new Labour Government has not indicated this allowance freeze will be scrapped with Rachel Reeves now taking the helm at the Treasury.

However, experts are reminding the public of fiscal drag's impact on their potential tax liability.

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This is the term used to describe when tax thresholds are frozen at a time of rising incomes or estate values.

The result of this is that Britons are pulled into higher or specific tax brackets which forces them to more money to HMRC.

Since the Covid-19 pandemic, the value of estates have risen substantially which has partially contributed to the hike in IHT receipts.

Laura Hayward, the tax partner at wealth management firm Evelyn Partners, says:

She explained: “With the baby boomer generation now hitting their 60 and 70s, some of that generation’s accumulated wealth is being passed on to children and grandchildren, and getting taxed on the way.

"The ‘great wealth transfer’ is also underway because many of the older, weather generations are making lifetime gifts to their families.

"As the wave of inheritance is set to grow over the next 30 years to a transfer of £5.5trillion, the temptation for successive Governments will be to tap into it to plug gaps in the public finances.

“One think-tank economist has already urged the new Chancellor to consider bringing defined benefit pension pots into the remit of IHT, ahead of Rachel Reeves’ first big fiscal statement, expected in October.

According to the tax expert, the first Labour Party Government Budget in almost 15 years will be watched by those concerned about any further changes to IHT or its relief.

Hayward added: "With both property and financial market assets continuing to surge in value, there is no prospect that this long-standing trend will abate: more estates, and more assets in each liable estate, will be dragged over the frozen thresholds at which IHT kicks in."

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What is inheritance tax?

This is a levy which is charged on the estates of individuals who have passed away, including their money, possessions and property.

It is charged at a rate of 40 per cent on estates prices over the £325,000 threshold apart from in certain circumstances.

Some a reduced inheritance tax rate of 36 per cent is charged on some assets if 10 per cent or more of the estate's "net value" to charity.

When someone gives away their home to a child or grandchildren, the IHT thresholds is raised to £500,000. Those who are married or in a civil partnership, whose estate is worth under the threshold, is able to use any unused threshold to their partners once they die.