Inheritance Tax receipts rose by £400m year on year to £3.9bn in the latest half year from April to Sept - continuing the rapid upward trend seen in recent years, according to the latest data from HMRC.

Industry experts have warned that the Chancellor faces difficult choices on IHT in his November statement.

The Conservatives are believed to want to scrap IHT or significantly reduce its impact but Chancellor Jeremy Hunt may need the revenue to shore up government finances.

Laura Hayward, tax partner at wealth manager and Financial Planner Evelyn Partners, said IHT receipts were a ‘gift’ for the Treasury but difficult choices were needed.

She said: “With the Chancellor warning this month that he will need to take ‘difficult decisions’ in November’s autumn statement given that public finances have worsened since the spring budget, the Treasury will be buoyed by the news that IHT receipts have shown yet another year-on-year increase.

“IHT receipts really are the gift that keeps on giving at a time when the Treasury needs to do all it can to bolster its coffers.  

“The prospect of abolishing IHT has been bounced around as an idea for a Conservative election manifesto pledge and while the Chancellor has been playing down the prospect of imminent tax cuts, it’s not impossible that he could pull a small IHT rabbit out of the hat at the autumn statement, with something like a raising of the nil-rate band.”

The nil rate band is currently frozen at £325,000 until at least April 2028 as part of a five year freeze on tax allowances.

Rosie Hooper, Chartered Financial Planner at Quilter, said IHT could be a battleground in an election year.

She said: “Inheritance tax (IHT) receipts from April to September 2023 reached £3.9n, £0.4bn higher than the same period last year. This shines a light on why both political parties are currently making IHT a battleground policy in the run up to an election next year. 

"This increasing revenue causes a conundrum for the government as IHT is an emotive tax that can split voters. 

“The Chancellor has extended the IHT threshold freeze until at least April 2028, and it is looking likely to rake in record amounts by stealth in the meantime. The problem lies in the fact that higher property prices have upped the number of households falling in the scope of IHT, and while growth has slowed in the housing market, we are still yet to see a significant drop in prices. The value of the average UK home now sits at almost £291,000 in August 2023 with that average much higher in the south of England.”

Just Group estimates the Treasury could net as much as £8.4bn a year from IHT by 2027/28. Recent research by the company shows low level of understanding among retirees about the current thresholds and the Inheritance Tax rules.

Stephen Lowe, group communications director at retirement specialist Just, said: “Inheritance Tax may turn out to be the government’s magic porridge pot, as the freeze on thresholds until 2028 combined with the 30% increase in property prices over the past six years push increasing numbers of estates into paying the tax.

“Our research finds that a worrying number of retired people don’t have a firm grasp of the Inheritance Tax rules which could leave many families with a nasty surprise. The majority (59%) of retirees over 55 said they don’t know what the threshold is for the value of an estate to pay Inheritance Tax and a further 50% of this age group don’t have a clear understanding of the rules.”