Published on : Sat, 19 Nov 2005 13:04GMT
by : David Parker

The number of UK homes which are valued above the inheritance tax threshold have tripled in last five years, according to a research carried out by Halifax. It has found that there are about 2.1 million homes in the UK worth more than £275,000. This means that one in every ten houses is liable for inheritance tax, while in London and south-east England one in two houses has to shell out this tax.

Currently, people, who have inherited assets worth more than £275,000, have to pay tax at a 40% rate. According to Halifax, this would more than double the Treasury’s income from taxes to around £3.4 billion this year compared to £1.6bn in the financial year ending 1997.

It is averred that the ceiling would rise to £300,000 in the tax year 2007-08. But Martin Ellis, the chief economist at the Halifax, feels that the threshold should be pushed up more. He added: “This trend will worsen unless the government acts now and raises the threshold to fully reflect the increase in property prices. We call on the government to link the threshold to house price inflation”

According to the bank estimates, if the lower limit had kept pace with inflation in property over the past 10 years, inheritance tax would have stood at £406,600 now. The bank also reports that house prices have risen 164 per cent since 1995.

The tax ceiling was approximately raised in line with retail price inflation from 1997 to 2004. This year’s rise was 5 per cent and is expected that further rise of 4 per cent is due by April 2006.

Meanwhile, a Treasury spokesperson said: “No previous administration has ever linked tax thresholds, including inheritance tax thresholds, to price movements of any particular asset. The practice of this government is no different.” This year's budget attacked some of the schemes which facilitated people to evade taxes.

It has not convinced all citizens though. “Unmarried couples should get married - that's an excellent tax avoidance measure, if a bit drastic,” said John Whiting, a senior tax partner at the accountancy firm PriceWaterhouseCoopers, though he believes many more people will end up paying inheritance tax one way or another.