Britain’s ‘stealth tax raid’ hits record highs

The latest figures from HM Revenue and Customs (HMRC) revealed millions of families caught out by the continuing ‘stealth tax raid’.

British households have been hit by a staggering £12.4bn more in taxes in the past six months than the same period last year as a result of frozen thresholds and personal allowances, with the government pulling in £4.4bn from inheritance tax alone as more families are ‘quietly’ pulled into the net.

HMRC collected £154.1bn revenue during the six months from April to September this year, marking a significant rise from the £141.7bn collected over the same period the previous year. The amount raised between April and September this year is up 2.3% and is due to be a new record for the government.

The frozen threshold for Inheritance Tax, first introduced by the Conservative government and currently set to remain in place until 5 April 2030, has remained the same while inflation and wages increase, leading to workers paying much higher taxes irrespective of the headline rates. It is a similar situation for the personal tax allowance, which is currently set to remain frozen until 2027/28.

What is inheritance tax?

Inheritance Tax (IHT) is a tax levied by the Government on the estate of a deceased person in the UK. This includes all of their assets including property, personal belongings, and investments and from April 2027, it also includes pensions.  

However, this levy only applies to the total value of the estate that exceeds the IHT threshold or ‘nil-rate band’. As of the 2025/26 tax year, the threshold is set at £325,000. Anything above £325,000 could be subject to up to 40% inheritance tax and anything below this threshold is tax-free. In addition, an extra allowance known as the residence nil rate band (RNRB) of up to £175,000 may apply when a main home is passed to direct descendants, potentially increasing the total tax-free threshold to £500,000.

Traditionally pensions have been exempt from inheritance tax but, from April 2027, pensions will no longer have this exempt status. This means that inheritance tax may have to be paid on your pension when you die.

Why are IHT receipts always on the rise?

The number of estates across the UK that are being pulled into the IHT net are increasing each year.  

Total IHT receipts collected by the Government have been steadily on the rise since the IHT threshold freeze. This was initially announced by the then Chancellor, Rishi Sunak, in his 2021 Budget. The Budget outlined that the IHT threshold would be frozen for five years until 2026. However, after ex-Chancellor Jeremy Hunt’s 2023 Autumn Statement, it was confirmed that the freeze would be extended a further two years until April 2028, and then after Rachel Reeves’ 2024 Autumn Statement, this was extended once again for a further two years until April 2030.

Due to wage inflation coupled with ever increasing property value across the UK, the freeze essentially means that a greater number of people will cross the inheritance tax threshold each year in a process known as ‘fiscal drag’.

Many have been calling this move an example of ‘shadow tax’, as the freeze ultimately means an increasing number of Britons will fall into the tax threshold each year until the freeze ends in April 2030, and by then the Government will have collected billions in extra inheritance tax.

The inheritance tax allowance of £325,000 increased from £312,000 on 6 April 2009.  This means the IHT nil rate band has now been frozen for over 15 years and will continue to be frozen until at least 5 April 2030.  That’s a staggering 21 years of higher taxes on death.

If you’re interested in how to manage your inheritance tax to ensure the best possible wealth protection for you or your family, we can help. Give us a call on 0333 323 90 65 or book a free non-committal initial consultation with a member of our team to find out more. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.