IHT planning in 2025 – How frozen thresholds could cost your family more

Inheritance Tax (IHT) is becoming a growing concern for families across the UK.

Recent figures show that IHT receipts from April to December 2024 reached £6.3 billion – an increase of £0.6 billion compared to the same period last year.

One of the key reasons? The Government’s decision to freeze IHT thresholds at 2020–21 levels until at least 2028.

This means more estates are being pulled into the IHT net, leading to higher tax bills for families who may not have previously expected to be affected.

With the right planning, however, you can take steps to minimise your estate’s tax liability and ensure your wealth is passed on efficiently.

Why are more families facing Inheritance Tax?

IHT applies at 40 per cent on the value of an estate above the £325,000 nil-rate band (or up to £500,000 if the residence nil-rate band applies).

Normally, these thresholds increase over time, but they have been frozen until at least 2028, meaning as property and asset values rise, more estates become taxable.

With house prices and investments growing, many people are now finding their estates unexpectedly liable for IHT.

Even those who do not consider themselves wealthy could be caught out, especially if they own property in high-value areas.

How can you reduce your IHT liability?

Although IHT can take a substantial portion of your estate, there are several ways to reduce the tax burden:

Lifetime gifting – You can give away up to £3,000 per year tax-free, plus small gifts of up to £250 per person. Larger gifts may also be exempt if you survive seven years after making them.
Trusts – Placing assets into a trust can remove them from your estate for IHT purposes, providing control over how they are distributed.
Business Relief – If you own a business, certain assets may qualify for up to 100 per cent relief from IHT.
Charitable giving – Leaving at least 10 per cent of your estate to charity can reduce the IHT rate from 40 per cent to 36 per cent.

With IHT thresholds frozen and receipts rising, more families are at risk of unexpected tax bills.

If you’re unsure about your potential IHT liability or need guidance on reducing your exposure, our team of tax specialists can help.

Get in touch today to discuss your options and start planning for the future.