Frozen thresholds and rising house prices mean more estates are being hit by IHT, with the issue beginning to affect families with modest wealth.

IHT receipts for the period April to July caused the highest single year rise in IHT since 2015/2016, according to analysis from wealth manager and Financial Planner Evelyn Partners (formerly Tilney Smith & Williamson).

Evelyn Partners has warned that IHT is now catching “more than just the wealthiest families.”

Julia Rosenbloom, tax partner at Evelyn Partners, said: “This latest reported year-on-year rise for IHT receipts follows HMRC’s recent bumper annual update showing the largest single-year rise in collections of the tax since the 2015/2016 tax year. 

“It’s clear that as a result of frozen tax thresholds, combined with rising house prices, IHT now catches more than just the wealthiest families. Those with more modest finances should also give thought to their tax planning to help minimise the chances of being hit by a hefty IHT bill.   

“Liz Truss, the favourite in the race to become the next prime minister, has made cutting taxes a prominent theme of her leadership campaign. However, it would be wrong to think that Truss and her Chancellor will cut taxes across the board if, as expected, she moves into Downing Street next month.

“Truss has pledged a ‘complete review of the tax system’ and confirmed that IHT would form part of that review, but what changes will be introduced is far from clear at this stage.”

Andrew Tully, technical director at Canada Life, said: “After the incredible spike in receipts the previous month, IHT levels have returned to slightly more familiar territory. The value of the tax is still just as important as it delivers £300 million more than the same period of time the previous year. This is a tax that is no longer just affecting the very wealthy in society and is increasingly catching out families who are unprepared or simply unaware.

"The frozen thresholds mean that HMRC has already doubled its tax take from IHT over the last 10 years. This surge will partly be driven by the ongoing increase in house prices, as residential property makes up the largest share of most estates. There has also been a higher volume of wealth transfers due to Covid – partly due to more deaths in the elderly population, but also as a result of higher asset values.

“Both the nil rate band and residence nil rate band are frozen until at least April 2026 so we can expect to see IHT receipts continue to rise. The legacy from the pandemic may mean more people are open to discussing estate planning with family."

Andrew Aldridge, partner at Deepbridge Capital, said: “Inheritance tax receipts continue to needlessly grow and this trend is not set to slow. However, prudent Financial Planning should enable many individuals in or approaching retirement to mitigate this tax on their estate providing some financial peace of mind.”

Alex Davies, CEO of Wealth Club said: “Inheritance tax reform is a potential vote winner for Rishi Sunak and Liz Truss among Conservative party members, but it’s hard to imagine it will be top of their agenda in any emergency Budget once they step into power. Cutting inheritance tax will do nothing to ease the cost of living crisis engulfing the country, and it’s a real cash cow for the Treasury too. IHT generates around £800 million in tax revenue each month, a very meaningful sum at a time when 29 million households are being given £400 each to offset energy bills."