Inheritance tax seize will rake in £14.3bn a 12 months by 2030, the OBR forecasts

Bereaved families are set to pay £2.4billion more in inheritance tax than previously expected by 2030, according to the latest official projections.

A raid on inherited pensions from 2027, on top of frozen thresholds and higher property values, is going to force better off families to hand over more of their wealth when their loved ones die.

The Treasury is now predicted to rake in a total of £66.9billion between 2024 and the end of the decade, when the annual inheritance tax take will hit £14.3billion.

The figure for the next tax year starting on 6 April has been revised up from £8.66billion to £9.10billion, according to Office for Budget Responsibility forecasts released alongside today’s Spring Statement by the Government.

In 2027-2028, the first year that pensions become liable for inheritance tax like other assets such as property, savings and investments, the OBR has hiked its forecast for receipts from £11.22billion to £11.71billion.

‘Frozen thresholds and rising asset prices have long been increasing the inheritance tax haul,’ says Stephen Lowe, director at Just Group.

‘With approximately one in 10 deaths forecast to incur inheritance on the estate by 2029-30, it is clear that the tax is no longer restricted to the very wealthy and is beginning to take a bigger bite of Middle Britain’s wealth.’

Jason Hollands, managing director of Evelyn Partners, says: ‘Ahead of today’s statement, the Chancellor had sought to quell speculation of further tax rises, which we have previously argued were very unlikely given the mood music, and when most of her previous measures have yet to come into force.

‘But the absence of further tax measures today should provide only limited comfort as the tax burden is only going to ratchet up from here, most immediately when employers’ National Insurance rises next month and then when pensions are brought into the scope of inheritance tax from April 2027.’

Since the pension freedom reforms in 2015, retirement pots have been treated generously by the taxman when people die, and many have boosted their funds with this in mind.

But the Government said in the autumn Budget that it is ‘removing the opportunity for individuals to use pensions as a vehicle for inheritance tax planning’ by bringing unspent pots into the scope of inheritance tax.

Only the richest 4 or 5 per cent of families currently pay inheritance tax, which is charged at 40 per cent on assets above the key thresholds – though as stated above the number paying is expected to rise significantly when pensions start being counted towards the levy.

The Government’s plan to impose inheritance tax on death benefits too has received far less attention, but could be even more significant to some grieving relatives. 

Although the changes to inheritance tax don’t come in until April 2027, people are being advised to review existing arrangements well in advance.

Some are looking to cash in as much of their pensions as possible while avoiding a big income tax bill, or gift out of surplus income which remains inheritance tax free providing you can afford it, or buy life insurance and put it in trust.

Others are deciding whether to leave more or all of their estate to spouses – who can still benefit from estates free of inheritance tax – instead of their children to delay and minimise the eventual bill.

Wealth manager Evelyn Partners has suggested we could see a marriage boom or rise in civil partnerships among older couples as a result. 

Evelyn’s financial planning partner Gary Smith suggested six ways to cut inheritance tax on pensions here.