UK Housing Boom Leaves Millions Of People Liable For IHT

by Jason Gorringe, Tax-News.com, London

08 April 2003

A recent study has suggested that millions more people will become liable for inheritance tax (IHT) in the UK as a result of the current boom in house prices.

The 40% tax is triggered when the value of a property reaches £250,000 or more, but presently only 25,000 people per year leave estates with a value higher than this figure. However, the recent property boom, which has caused house prices to leap in the last couple of years, could mean that this number balloons to something like 2 million, according to some experts.

Research by mortgage lenders Bristol and West suggests that the Treasury will net £200 billion from the Inheritance Tax (IHT) in the coming decade. At present, revenue from IHT comes in at around £2.2 billion per year.

Currently, the IHT threshold tracks retail prices, but this has been far outstripped by soaring house prices, leading to the dramatic increase in the number liable for the tax. Experts have called for Chancellor, Gordon Brown, to either change the system so that IHT tracks house prices, or raise the threshold for when the tax becomes payable to £500,000. However, few are holding out hope for such a move when the Chancellor delivers his budget speech this week.

Simon McKie of the Chartered Institute of Taxation believes that the threshold should be raised to £500,000, arguing that the tax is now hitting people it was never designed to affect. The UK housing market in 2003 is markedly different to when the tax was introduced in 1974 and the tax "has mutated into something that has no rationality." McKie commented to the Mail on Sunday.

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