Payments from inheritance tax to the UK government reached £6.3 billion over the nine months leading to December, with expectations for an increase following upcoming budget tax adjustments announced by Rachel Reeves.

According to data released by HM Revenue and Customs on Wednesday, inheritance tax (IHT) revenue increased by £600 million in comparison to the same period in 2023.

Nicholas Hyett, an investment manager at Wealth Club, noted, “Inheritance tax remains a significant source of revenue for HMRC, demonstrating a continuous upward trend. While it currently impacts a limited number of estates, that figure is steadily rising, indicating that this often-unpopular tax may become even more contentious.”

In her October budget, Rachel Reeves revealed plans to include inherited pension pots under IHT starting April 2027. She also announced a reduction in tax relief for farmers when transferring assets and implemented a freeze on various IHT thresholds.

Alastair Black, head of savings policy at Abrdn, expressed concern, stating, “Including pensions under IHT could create significant anxiety for families who depend on these funds for passing down their wealth.”

Leaders from wealth management firms such as AJ Bell, Hargreaves Lansdown, Interactive Investor, and Quilter penned a letter to the Chancellor, cautioning that taxing pensions under IHT might result in families facing unexpected tax liabilities.

Richard Wilson, CEO of Interactive Investor, criticized the proposals, calling them “an insult to individuals who have responsibly invested in pensions throughout their careers to secure their financial future, while also taking steps to comply with current tax regulations.”

Michael Summersgill, CEO of AJ Bell, remarked, “Beyond the challenges families face during times of mourning, these proposals could lead to exorbitant tax rates of 64% or higher on inherited pensions. It is essential for the Treasury to explore alternative solutions suggested by the industry to implement reforms that are more straightforward and equitable for pension savers across the UK.”