Death tax warning as households in England warn to ‘give money’ | Personal Finance | Finance

HM Revenue and Customs (HMRC) has published figures showing inheritance tax collections reached £5bn in the seven months from April to October 2024.

This represents an increase of £0.5bn compared to the same period in the previous tax year and continues the upward trend seen over the last two decades.

Experts have suggested that Britons should distribute their money early if they want to avoid losing out.

In the last full tax year, inheritance tax collected £7.499bn, with just one in 20 estates now liable. But in the Autumn Budget the Chancellor announced several changes:

1. Extension of the freeze on IHT thresholds for a further two years (until 2030).

2. Reforms in Agricultural Aid and Commercial Property Assistance; This means that from April 2026, the first £1 million of qualifying combined assets will be exempt from inheritance tax, but a 50% discount will apply to assets over £1 million. 20%.

3. Qualifying AIM shares will no longer have full exemption from IHT; instead, they will have a 20% inheritance tax rate if held for two years from 2026.

4. From 6 April 2027, inherited pensions may be subject to inheritance tax in addition to the income tax applicable to the recipient; This means that transferred pensions can be taxed at an effective rate of up to 67%, subject to consultation.

Alex Davies, CEO and Founder of Wealth Club, said: “Inheritance tax was already an absolute cash cow for the government. The extreme changes announced in last month’s Budget, which have badly affected farmers, business owners, pension policy holders and investors, are wondering what these figures mean.” It shows that it will only increase in the coming years.

“We believe that any changes to inheritance tax made in the Budget are extremely short-sighted. First, the tax burden is already at its highest level in 70 years and growth is very low. More taxes are likely to suppress growth even further. Second, we have not given those affected by these changes time to plan.

“It’s more a case of ‘one day it’s your money, the next day it’s not’, a sentiment that doesn’t encourage people to invest in the future, whether that’s in their own business or a savings vehicle, a pension.

“However, you can only base your decisions on the facts as they currently stand, and it appears there are still available ways to reduce the inheritance tax paid by your estate, but many of these require time and greater risk.”

The expert suggests that those concerned with inheritance tax should consider:

Distributing money early is one way to avoid inheritance tax. Gifts received from regular income and that do not affect the giver’s lifestyle are immediately exempt from inheritance tax, as are some small gifts.

However, timing is crucial as you can donate unlimited amounts, but it usually takes seven years for these to be fully exempt from inheritance tax. But remember, once you give the money away, you lose control over it. If you need it back in an emergency this won’t be an option.

Investing in unlisted companies that qualify for Business Property Relief is another method. These investments are generally exempt from inheritance tax after two years. Although investing in unlisted businesses carries risks, you retain control unlike giving away money. From 2026 you will be eligible for Job Assistance Allowance of £1 million. Anything above this will be taxed at 20%.

Another option is to invest in an AIM ISA. Normal ISAs are not exempt from inheritance tax. When you die, your loved ones may lose 40% of your hard-earned money. AIM ISAs are a popular, albeit riskier, way to reduce this. They can currently be IHT free after two years. From 2026, IHT will be halved to 20%.