Death tax warning: UK households warned to ‘give away the money’ | Personal Finance | Finance

Her Majesty’s Revenue and Customs (HMRC) has released figures showing inheritance tax receipts reached £5 billion in the seven months from April to October 2024.

This is an increase of £0.5 billion compared to the same period in the previous tax year, continuing the upward trend seen over the past two decades.

Experts believe Britons should consider giving away their money sooner if they want to avoid losing out.

In the last full tax year, inheritance tax raised £7.499 billion and only one in 20 inheritances are currently taxed. However, in the autumn budget the Chancellor announced several changes:

1. Extension of the moratorium on IHT threshold values ​​for another two years (until 2030).

2. Reforms to agricultural and commercial property relief, meaning that from April 2026 the first £1 million of qualifying total assets will be exempt from inheritance tax, but 50% relief will apply to assets valued over £1 million at the effective rate 20%.

3. AIM eligible shares will no longer have full IHT relief; instead, from 2026 they will have an inheritance tax rate of 20% if held for two years.

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

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 are bad for farmers, business owners, pension policyholders and investors, mean these numbers are only set to increase in the coming years.

“We believe that all the changes to the 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. The tax increase is likely to further dampen growth. Second, these changes did not give victims time to plan.

“It’s very much a case of ‘one day it’s your money, tomorrow it’s not’; this view is unlikely to encourage people to invest in the future, whether in their own business or in a savings vehicle such as a pension.

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

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

Taking money out early is one way to avoid inheritance taxes. Gifts received from regular income that do not affect the donor’s lifestyle are immediately exempt from inheritance tax, as are some smaller gifts.

However, timing is of the essence as you can give away unlimited amounts, but it usually takes seven years for them to be fully exempt from inheritance tax. But remember: once you give away your money, you lose control over it. If you need it in an emergency, this is not an option.

Another method is to invest in unlisted companies that are eligible for Enterprise Property Relief. These investments are usually exempt from inheritance tax after two years. While there is risk involved in investing in unlisted businesses, unlike giving away money, you retain control. From 2026 you will receive £1 million of Business Relief Allowance. Anything over this amount will be taxed at 20%.

Another option is investing in an AIM ISA. Ordinary ISAs are not exempt from inheritance tax. When you die, your loved ones could lose up to 40% of your hard-earned money. An AIM ISA is a popular, albeit riskier, way to reduce this. Currently, they can be free of IHT in two years. From 2026, personal income tax will be halved to 20%.