HMRC has reported a record year for UK tax receipts, but is increasingly relying on so-called ‘stealth’ taxes, warn analysts.
Inheritance Tax (IHT) receipts for April 2025 to March 2026 reached £8.5 billion, up £0.2 billion on the previous year and marking yet another record high.
The main driver remains the long-standing freeze on thresholds. The standard nil-rate band stays at £325,000, while the residence nil-rate band (for homes passed to direct descendants) remains at £175,000 , both fixed until 2031.
In high-property-price areas such as London and the South East, the family home alone frequently pushes estates over these limits, leaving little scope for other assets to pass tax-free.
“Further strain is already building,” said Rachael Griffin, tax and financial planning expert at Quilter.
“Restrictions to Agricultural Property Relief and Business Relief from April 2026 will increase exposure for business owners and farming families, while unused pension pots will fall within the scope of Inheritance Tax from 2027, bringing what has long been the largest asset outside the estate firmly into charge. This policy change alone will turbo-charge receipts for years to come.”
What was once seen as a tax on only the wealthiest families is now firmly a middle‑income issue, she warned.
“With thresholds frozen and further policy changes still feeding through, IHT bills are becoming harder to mitigate, making early planning and professional advice increasingly important.”
Income tax and NICs continue to do the heavy lifting
PAYE income tax and National Insurance contributions (NICs) delivered £471.5 billion for the tax year, a substantial £48.5 billion increase on the prior period. This rise occurred despite only modest real-terms pay growth for many workers.
The increase largely stems from the Chancellor’s decision to maintain the freeze on income tax thresholds. As nominal wages edge higher to offset inflation, more earners are pulled into higher tax bands through fiscal drag.
A growing portion of any pay rise is therefore swallowed by tax, leaving many households with little or no real improvement in living standards.
The conflict in Iran has already driven up oil prices, feeding through into higher fuel and energy costs and raising the risk of another sustained inflationary period.
When combined with frozen tax thresholds, this creates a double squeeze of rising prices erode purchasing power while tax bills claim a larger share of income.
Capital Gains Tax hit huge record high
Capital Gains Tax (CGT) receipts surged to £22.2 billion for 2025/26 — by far the highest on record and well above the previous peak of just under £17 billion in 2022–23. For context, receipts stood at only £11.1 billion in 2020–21.
“This surge reflects a combination of a supportive investment environment and recent policy changes. Equity markets have been strong and asset prices have recovered well over the past year, which has naturally increased the pool of gains available to be realised,” said Griffin.
“However, policy has clearly amplified that effect. The annual exempt amount has been cut from £12,300 to £3,000, while CGT rates on shares and other investments were raised in October 2024 from 10% and 20% to 18% and 24%, significantly increasing the tax due on each disposal.”
She notes that this combination appears to have encouraged some investors to bring forward decisions and crystallise gains sooner than planned, boosting receipts this year.
“Whether this marks a new, structurally higher level of CGT revenue or simply a one‑off response to a policy shock remains to be seen.”
Leave a Reply