Inheritance Tax (IHT) has become known for being “Britain’s most-hated tax”.
Charged at 40% as standard, IHT could erode the value of your estate. As it typically only comes into play when you pass away, you may feel concerned about the potential bill your loved ones could face.
Fortunately, knowledge is power when it comes to tax planning. And, while you might have a basic understanding of IHT, the more you know, the more informed choices you can make with your wealth and estate plan.
So, read on to discover five lesser-known IHT facts you may need to know so you can plan for the future armed with the knowledge you need.
1. Inheritance Tax raises a very small portion of HMRC’s annual receipts
IHT is probably one of the most discussed taxes in the media. Yet, it contributes very little to the government’s coffers compared to other forms of taxation.
As figures from the government show, HMRC collected £858.9 billion in taxes in 2024/25. Of that, IHT receipts reached a record high of £8.2 billion – still a small proportion overall.
Compare that to Income Tax, which contributed £489 billion to the total – that’s more than half of what HMRC generated in 2024/25.
As a result, although IHT is often dubbed “Britain’s most hated tax”, it is a relatively unimportant one for the government.
That said, it’s worth noting that IHT receipts have risen substantially over the past two decades. In 2005/06, the government took just £3.3 billion from IHT.
But even this figure is fairly in keeping with long-term trends – annual IHT receipts as a portion of GDP were 0.2% in 2005/06, rising marginally to 0.3% in 2024/25.
So, although receipts have increased, this is in keeping with wider economic growth in the UK.
2. Not all estates pay Inheritance Tax
The total paid in IHT to HMRC also comes from a relatively small number of estates.
Data from MoneySavingExpert indicates that around just 6% of estates pay IHT. Additionally, pensions are set to be caught in the IHT net from April 2027. But even then, it’s expected that this will only lead to 8% of estates facing a bill.
In large part, this is because estates pass tax-free between married and civilly partnered couples. In other words, leaving your estate to your spouse or civil partner will not trigger an IHT charge.
With this rule in mind, this datapoint shows how it’s relatively unlikely that most people will pay any IHT at all.
3. The nil-rate band has not risen since 2009
As you may know, before IHT is due, each individual has a nil-rate band that allows them to pass on a portion of their estate tax-free. As of 2025/26, this stands at £325,000.
Historically, this threshold has increased over time to reflect rising asset values and inflation.
However, the nil-rate band has not increased since 2009, and is frozen until 2030. As individuals continue to accrue wealth, this means more of their estates will likely become subject to IHT.
Alongside the standard nil-rate band, the government also introduced a separate residence nil-rate band in 2017, to reduce IHT on increasing property prices. This gives you an additional tax-free threshold if you pass your main residence to direct lineal descendants, such as children or grandchildren.
In 2025/26, this stands at up to £175,000, depending on the value of the property. Combined, that takes the total amount you can pass tax-free to your beneficiaries up to £500,000.
However, this threshold has not increased since 2020, and is also frozen until 2030. So, with property prices continuing to increase, it is likely that the value of more homes will be caught in the IHT regime.
It’s also important to be aware that your residence nil-rate band will be reduced by £1 for every £2 that your estate exceeds £2 million in value. This would see your entire additional threshold taper away if your total estate is worth £2.35 million.
4. Spouses and civil partners can claim their late partner’s unused nil-rate bands
As discussed above, spouses and civil partners can inherit their deceased partner’s estate completely IHT-free.
Crucially, they also inherit their late partner’s unused nil-rate bands. That includes both the standard nil-rate band (£325,000 in 2025/26) and residence nil-rate band (up to £175,000, 2025/26).
This means that, when the surviving spouse or civil partner passes away, their beneficiaries will only pay IHT on the estate’s value that exceeds both individuals’ nil-rate bands.
For example, a couple who own a main residence worth at least £350,000 and leave it to their direct descendants could pass on up to £1 million tax-free.
The taper for the residence nil-rate band applies to the combined total of the two thresholds, too. So, it would only taper away entirely if the estate was worth £2.7 million or more.
5. There are plenty of methods you can use to mitigate Inheritance Tax
Although IHT affects relatively few estates, you won’t want to put your loved ones in the position of needing to pay a bill. That’s why it’s well worth working with a professional to see whether your estate will face IHT and, if so, put measures in place that mitigate a charge.
For example, you could consider one or multiple of the following:
- Making financial gifts. There are various gifting allowances and exemptions you can use to pass tax-free wealth to your beneficiaries now. This will reduce the size of your taxable estate.
- Contributing to charitable causes. Gifts to charity, made either now or in your will, are free from IHT. Furthermore, if you leave 10% of your net estate to a charity, the payable IHT rate will fall from 40% to 36%.
- Putting assets in trust. When you place assets in trust, they are removed from your estate and set aside for your chosen beneficiaries. You must take care when using trusts as the rules are complex and IHT may still apply.
The sooner you start thinking about your IHT liability, the more time you will have to implement methods like these and reduce the burden on your loved ones in the future.
Get in touch
If you would like to work with a team of professionals to help you organise your affairs for the future, please do get in touch with us at Page Kirk Financial Services.
We have both a financial services firm and a Chartered accountancy and Chartered tax advisory business, meaning we can help you with a range of related issues.
From tax and estate planning, to supporting you in managing your wealth so you can achieve your life goals, we can help you make effective decisions for both you and your family.
To find out more, please get in touch with one of our two businesses:
- Email enquiries@pkfs.co.uk or call 0115 993 6000for Page Kirk Financial Services.
- Email enquiries@pagekirk.co.uk or call 0115 955 5500 for Page Kirk Chartered accountants and Chartered tax advisers.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or will writing.
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