Two million properties valued at more than IHT threshold

Halifax research calculates that the number of properties in the UK valued at more than the 275,000 Inheritance Tax threshold now stands at an estimated 2.1 million or 12% of all owner-occupied properties.

There has been an almost three-fold increase in the number of properties above the threshold over the past five years from 800,000 in Q3 2000 to 2.1 million in Q3 2005.

The Inheritance Tax take is expected to more than double between 1996/97 and 2005/06, from 1.6bn to a projected 3.4bn, according to the government’s own estimates.

A properly drawn will, together with professional tax advice, are key factors in ensuring that owner occupiers effectively manage their tax liabilities.

At a local level, Halifax calculates that the average house price is now above the threshold in one in 10 local authorities or 38 of the 384 surveyed.

Five years ago, the average house price was above the then threshold of 234,000 in only one in 50 local authorities.

Halifax calculates that the IHT threshold of 275,000 would now be 406,600 if it had been increased in line with house price inflation over the past 10 years.

House prices have risen by 164% in the past 10 years compared to only a 79% increase in the IHT threshold.

The IHT threshold has been increased by successive governments of both main political parties on an ad hoc basis.

Over the period 1997 to 2004, the IHT threshold was increased broadly in line with retail price inflation; it rose by 22% against a 19% increase in the retail price index and 129% growth in house prices.

In 2005, the threshold was increased by 5% to its current level of 275,000. A further 4% increase is scheduled for April 2006, followed by a 5% increase in April 2007, which will bring the threshold to 300,000.

Indexing the IHT threshold in line with the retail price index consistently underestimates the rise in house prices.

Over the past 20 years, Halifax calculates that house prices increased by 357% against a 102% increase in retail prices.

Additionally, house prices have risen faster than retail prices in 16 out of the past 20 years.

Sales above the IHT threshold account for at least 25% of transactions in 62 LAs. Over a quarter of these LAs are in London and 45% are in the South East. Five years ago, only 18 LAs or 5% of the total had more than 25% of their sales above the IHT threshold then of 234,000.

At the moment 6% of sales outside southern England London, South-East, East and South-West – are above the 275,000 threshold.

West Midlands currently has the highest proportion of sales above the IHT threshold (7%) whilst Northern Ireland has the lowest proportion of sales above 275,000 (2%).

More than one in three residential property sales in London are above 275,000. In the South-East, almost one in five sales are above the threshold. One in three – 11 out of 32 – London boroughs have an average house price above the IHT threshold. Three in 10 LAs in the South-East have an average house price above the IHT threshold.

Martin Ellis, chief economist at the Halifax, says: “More than two million UK households now see the value of their home above the inheritance tax threshold compared to 800,000 households just five years ago. This trend will worsen unless the government acts now and raises the threshold to fully reflect the increase in property prices.

“According to our figures, the inheritance tax threshold would be raised to 406,600 if it were increased in line with the rise in house prices over the past 10 years more than 130,000 above its current level. We call on the government to link the threshold to house price inflation.

“The government made a welcome move earlier in the year to take many first-time buyers out of the stamp duty net. We hope that they will do the same for inheritance tax.”