Research Highlights UK Government's IHT Tax Grab

by Robert Lee, Tax-News.com, London

09 August 2006

New research by the UK's Halifax Bank based on recently released data from HM Revenue and Customs, shows that the total number of estates paying inheritance tax (IHT) rose by 72% over the five years to 2003/04 to more than 30,000.

As the IHT threshold, currently GBP285,000, fails to keep pace with increasing house prices, the government's own estimates suggest that the number of estates caught in the IHT net will rise by a further 22% by the end of 2006/7.

Halifax's research also finds that the less affluent households are being hit harder than the wealthy. The number of estates with a value of less than GBP500,000 paying IHT rose by 75% over the five years to 2003/04 to 21,750. These estates now account for 71% of all estates paying IHT.

In 2003/04, 8% of all estates worth less than GBP500,000 paid IHT, up from only 5% in 1998/99. The average amount of IHT paid by these estates was GBP31,393. Estates valued less than GBP500,000 accounted for 25% of total IHT revenue in 2003/04, GBP683 million.

Estates worth more than GBP2,000,000 accounted for 19% of total IHT revenue in 2003/04, GBP526 million, down from 23% of total IHT revenue in 1998/99. Estates valued between GBP500,000 and GBP1,000,000 generated the most IHT revenue in 2003/04, GBP921 million, or 33% of the total.

Last financial year (2005/06) the government collected GBP3.3 billion in IHT revenue and projects GBP3.6 billion in revenue in the current financial year (2006/07). Over the past five years there has been a 49% increase in IHT revenue.

"The steep increase in the number of estates paying inheritance tax highlights that the current inheritance tax threshold of GBP285,000 is too low," commented Tim Crawford, Group Economist at Halifax.

"Significantly, families with lower valued estates are paying an increased share of the total inheritance tax take whilst the super-rich are paying a smaller share," he added.

Crawford says that the trend is set to continue unless the government increases the IHT threshold in line with recent house price inflation.

"We call on the government to raise the inheritance tax threshold to GBP430,000 to account for the increase in property prices over the past ten years," he said.

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