Inheritance tax update as chaos in economy could mean HMRC 'owes you money'

Chancellor Rachel Reeves announced last year that she has plans to make defined contribution pension pots count under Inheritance Tax (IHT) calculations in 2027. It could see thousands more estates being drawn into the fray, but it's just been one minor headline in a storm of financial market chaos globally over the last few months. However, this could be an unsuspected silver lining for some as the current turbulence could mean they'll be able to avoid paying what critics label the 'death tax' at the eleventh hour - or be paid back part of the tax bill.

Expert Ian Dyall explained: "The recent financial market turbulence will, however, have hit the value of some estates in the short term, especially those that are heavily invested in the stock market. One silver lining of this for some families could be an IHT rebate."

Essentially, estates that were looking at a hefty IHT bill and were invested in certain areas of the stock market may have seen their investments drop, in turn dropping them out of the IHT liability.

The Head of Estate Planning at wealth management firm , continued: "If their estate was valued on death, say, six months ago and the IHT bill settled on the basis of that, then by the time probate is granted and assets have been liquidated, it could be that the total value of the estate has dropped.

"Executors should check the estate's value at the point it is distributed to beneficiaries and compare this to the estimate given to HMRC when the IHT liability was calculated.

"It could be that the estate is due some money back from HMRC."

The Treasury also revealed this week that a new record high has been set for Inheritance Tax receipts.

The 2024/2025 tax year saw £8.2billion being collected from IHT, £0.8billion or 10.8% more than the year before.

The expert noted: "The inheritance tax take for the Treasury has notched up another record financial year. That's a trend that is unlikely to change as long as nil-rate bands remain frozen, which is currently until at least 2030.

"Even with market turbulence like we have seen recently, long-term increases in asset values tend to draw more estates across the IHT thresholds, and the inclusion of unspent pension funds in IHT liabilities from April 2027 - along with the dilution of agricultural and business reliefs next year - will give that trend a big leg up."

Despite this record increase, Ian also warned that the market fluctuations could mean "the Chancellor might not be done with IHT reform quite yet".