The number of bereaved families facing an inheritance bill is set to double to one in 10 by 2030, it is claimed.
The warning came as it emerged government income from what is described as Britain’s “most hated tax” rose by £600 million to £5.7 billion form the past eight months.
A decision to extend inheritance tax to private pension pots, farms and family businesses in the Budget means the number of estates hit by the death tax is on course to rise from one in 20 to one in 20.
Changes to Inheritance tax (IHT) announced at the Autumn Budget included:
* From April 6, 2027, inherited pensions could be subject to inheritance tax in addition to income tax levied on the recipient meaning passed-down pensions could be taxed at an effective rate of up to 67 percent.
there are still ways to reduce the inheritance tax paid by your estate (Image: Getty)
* An extension to the freeze on IHT thresholds, which have been frozen for a further two years (until 2030).
* Agricultural Relief and Business Property Relief have been reformed, meaning that from April 2026, the first £1m of qualifying combined assets will have no inheritance tax at all, but for assets over £1m a rate of 20% will apply.
* Qualifying AIM shares will no longer have full exemption from IHT, instead from 2026 they will have an inheritance tax rate of 20% if they are held for two years.
Nicholas Hyett, Investment Manager at Wealth Club said: “Inheritance tax continues to be the gift that keeps on giving, at least as far as the government is concerned.
“Yet again is increasing the amount that it’s milking from the estates of the recently deceased.
“Decades of rising property prices have been a major driver, pushing estates above frozen nil rate bands, and from April 2027 pension pots will fall into the taxman’s net as well meaning even more families are dragged into paying this most hated of taxes.
“Farmers are already in uproar about the new Tractor tax, and removing IHT relief on family businesses could mean the final nail in the coffin for businesses that would otherwise have been passed on through many generations. These changes will harm many, many businesses and do not reflect the governments objectives to get the economy moving.”
Jonathan Halberda, Specialist Financial Adviser at Wesleyan Financial Services, said: “Another month, another increase in the Government’s Inheritance Tax receipts.
“This was entirely predictable given that the £325,000 threshold has been frozen until 2030, which will inevitably drag more estates into the IHT net.”
What can investors do to mitigate their inheritance tax bill?
Despite recent reforms Wealth Club said there are still ways to reduce the inheritance tax paid by your estate, although many of them do require time and more risk:
It said those concerned about inheritance tax should consider:
* Giving money away early. Gifts taken out of regular income, which are not deemed to affect the giver’s standard of living, are inheritance tax-free on day one – as are certain smaller gifts. Timing is key as you can give unlimited amounts away but typically these take seven years to be completely inheritance tax-free. Of course, once you give away the money you’ve lost control. If you need it back for an emergency, that’s not an option.
* Investing in unlisted companies that qualify for Business Property Relief. These are typically inheritance tax-free after two years. Investing in unquoted businesses can be risky, however, unlike giving the money away, you retain control. From 2026 you will have an overall £1 million Business Relief Allowance. Anything in addition will be taxed at 20%.
* Investing in an AIM ISA. ISAs are not inheritance tax-free. When you pass away, your loved ones could miss out on 40% of your hard-earned cash. AIM ISAs are a popular, although much riskier way, to reduce this. Currently after two years they could be IHT-free. From 2026 the IHT will be halved to a rate of 20%.”