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UK Inheritance Tax Net Catches Two Families Every Minute

by Robert Lee, Tax-News.com, London

16 August 2004

Two families per minute find themselves liable for inheritance tax because of the rising value of their properties, a new report released last week by financial services group Friends Provident has revealed.

According to the report, the number of properties valued at more than £263,000 - the inheritance tax threshold (IHT) - rose by almost 500,000 in the first half of this year. As a result, an estimated 2.4 million more home owners find themselves liable for the tax.

Until recently it was paid by only a small minority and 10 years ago raised £1.3 billion for the exchequer. Now IHT raises at least £2.4 billion and affects millions of middle-income earners it was never intended to catch.

“Inheritance tax is now a hidden threat to millions of families” notes Ian Jefferies, Head of Investment Marketing at Friends Provident. “The research shows that two families are now falling into the IHT trap every minute."

The rapid growth of the inheritance tax net demonstrates the need for those even on modest incomes to plan carefully for the future so as not to get stung by the 40% tax.

Recent research from the London Housing Federation shows that the average house price in Greater London has climbed to £251,368, only £11,000 or so below the current IHT threshold. Nine London boroughs now have an average house price which would trigger a potential inheritance tax charge, the research shows.

However, it is not just London where homeowners are being penalised. Average house prices in the surrounding counties of Oxfordshire, Buckinghamshire, Surrey and Hertfordshire, would all fall foul of the current £263,000 threshold.

The IHT threshold has increased 75% from £150,000 in 1992/93 to £263,000 in 2004/05. During the same period, house prices have far exceeded this by rising 139%. If the IHT threshold had kept pace with this rise in house prices, it would now be £359,000 - £86,000 higher than it actually is.

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