Inheritance taxes are paid by thousands more, and the number is predicted to double before the end of the decade

As Rachel Reeves' pension reforms take effect in April 2027, the number of deaths that resulted in inheritance tax increased by 13% in a single year, with further increases anticipated

Before Rachel Reeves' reforms take effect, experts say the number of British citizens paying inheritance tax on the estates of their loved ones has risen to almost all-time highs before the trend continues.

According to the most recent data from HMRC, an additional 3,700 deaths in 2022 - 2023 resulted in inheritance tax. This results in 31,500 taxpaying IHT estates overall, a 13% increase over the prior year.

In addition, the percentage of deaths subject to inheritance tax increased to 4 out of 62, which is a 0 out of 23 percentage point increase from the previous tax year. This percentage now roughly corresponds to the peak from 2016 to 2017.

Thanks to chancellor Rachel Reeves's inheritance tax reforms, particularly the imposition of IHT on unused pensions, this 4point 62 percent figure is expected to double to 9point 5 percent by the end of the decade.

In a different post, we examine strategies for lowering your IHT bill.

The director of retirement specialist Just Group, Stephen Lowe, stated: "It is anticipated that the reforms unveiled in the Autumn Budget 2024 will greatly increase the number and percentage of deaths that result in IHT charges.

By the end of the decade (20292030), it is predicted that approximately one in ten deaths (9.5%) will be subject to inheritance tax as these fiscal reforms take effect and more and more people fall into the thresholds.

The primary cause of this increase will be the elimination of the pensions exemption from IHT; according to the Office for Budget Responsibility, starting in April 2027, this change will bring 31,200 more estates under IHT's purview before the end of 2029 - 2030.

In the UK, 44% of all inheritance taxes are levied in London and the South East. The North East, Northern Ireland, and Wales had the fewest taxpaying estates, which HMRC ascribed to the lower housing costs in those areas.

What are the updated rules regarding pension inheritance taxes?

Any unused pension funds will be included in the estate for IHT purposes as of April 6, 2027, in accordance with new government regulations.

Because the entire pot could be taken IHT and income tax free if the person died before the age of 75, it was not unusual in the past for people to leave their pensions completely unaltered as a future inheritance for their children.

According to financial advisors, many people who have been building up sizable pensions for their IHT benefits now require a completely new approach, and the number of deaths that result in an IHT charge is predicted to rise as a result of the new changes.

Some people decide to give their money away before they pass away in order to avoid inheritance tax. Some people are using their pensions more quickly than they otherwise would have.

In a separate article, we examine whether the 4 percent pension rule is no longer applicable as a result of IHT changes and why the 6 percent pension rule might take its place.

Tip of the iceberg: inheritance tax?

According to Scott Gallacher, director of the financial advising firm Rowley Turton, the Reeves inheritance tax reforms will cause a large number of additional people to deal with an IHT problem in the years to come.

In the near future, he anticipates that most of his clients will have a significant IHT issue, up from the current percentage of about 10%.

Perhaps this is the quiet before the storm, or the tip of the iceberg. "Many more families will be caught in Rachel Reeves' expanding IHT net if proactive planning is not done," he stated.

We now have to consider the possibility that IHT will affect farms, businesses, and pensions, so it's not just about home prices. Even relatively modest estates are at risk because the nil-rate bands are still frozen at 1.

Before these changes fully take effect, it is imperative that people review their estate planning.