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New Figures Confirm Alarming Growth Of UK IHT Net

by Robert Lee, Tax-News.com, London

27 February 2007


The number of UK postcode districts in which the average house price is above the inheritance tax (IHT) threshold has more than doubled in the past five years, according to a new report.

The Halifax has calculated that the average house price in 236 (11%) postcode districts in England and Wales is now above the IHT threshold, compared to 117 (6%) postcode districts five years ago in 2001.

The IHT threshold is set to rise to GBP300,000 in 2007/8, up from GBP242,000 in 2001/2, but this increase has been surpassed by the rate of house price inflation over the same period. Sales above the inheritance tax threshold accounted for at least 25% of property sales in 423 (20%) postcode districts across England and Wales in 2006, compared with 230 (11%) districts in 2001, the report stated. They include 54% of London postcode districts, and 40% of postcode districts in the South East. All regions of England and Wales have postcode districts with more than 25% of home sales above the IHT threshold.

There are 22 postcode districts which have seen at least a 25% increase in the proportion of home sales above the IHT threshold. 16 of these districts are outside London and the South East. The largest increase in the proportion of housing sales above the inheritance tax threshold over the past five years has been in NE20 in Newcastle, up from 22% to 61%. This was followed by PL28 in Padstow, Cornwall, with a 39% increase and EC2Y in the City of London, also with a 39% rise.

However, the top ten postcode districts above the IHT threshold are all in London and the South East: SW1X in Knightsbridge (GBP1,259,050) and SW7 in Kensington (GBP1,105,491) are the postcode districts with the highest average house prices above the IHT threshold. All of the top ten most expensive areas are in London, apart from GU25 in Virginia Water, Surrey (GBP785,215).

Outside of the South East of England, SK9 in Alderley Edge, Cheshire (GBP376,704) is the postcode district with the highest house prices above the IHT threshold, followed by NE20 near Newcastle upon Tyne (GBP376,786) and B94 in Solihull, West Midlands, (GBP370,213). Thirteen postcode districts outside the South of England have an average house price above GBP300,000, including one in Wales, CF71 in Cowbridge. (GBP338,316).

There are postcode districts with average house prices above the IHT threshold in all English regions, apart from Yorkshire & the Humber. 36% of postcode districts in London have an average house price above the inheritance tax threshold of GBP300,000, while 25% of postcode districts in the South East are priced above the IHT threshold.

Since 1995/96 house prices across the UK have increased by 199%, more than double the increase in the IHT threshold, up 95% to GBP300,000 for 2007/08. If the threshold had increased in line with house price inflation since 1995/96, it would be now be at a level of GBP460,000, more than 50% above the 2007/08 GBP300,000 IHT threshold.

Over the five years to 2007/08, Halifax calculates that total cumulative inheritance tax (IHT) revenue will be GBP16.4bn, up more than 50% from the GBP10.8bn raised by the government in the previous five years. Revenue raised in 2006 was a record GBP3.5bn, up GBP375m (12%) on 2005, when GBP3.1bn was collected. The government's own projections are for annual IHT revenues to reach GBP4.1bn in 2007/08.

Halifax estimates that the number of owner-occupied properties in the UK valued at more than the 2007/08 IHT threshold of GBP300,000 now stands at 2.3 million, or 12% of all owner-occupied properties. In 2001 only 1.3m properties or 7% of owner occupied properties were valued above the then IHT threshold of GBP242,000. If the IHT threshold was increased to GBP460,000, only 4% (780,000) of properties would be valued above the threshold.

Halifax projects that the number of properties valued above the IHT threshold across the UK will rise by a further 88% or 2.0m by 2020 to 4.3 million properties if the threshold is only increased in line with retail price inflation. On this basis, the number of postcode districts in England and Wales with an average house price above the IHT threshold would more than double to 480 in 2020 from 236 in 2006, and account for 23% of postcode districts.

Commenting on the findings detailed in the report, Tim Crawford, Group Economist at Halifax stated:

"The potential reach of inheritance tax is extending year by year across the country. There has been a doubling in the number of postcodes where the average house price is now above the threshold in the past five years. House prices continue to increase more quickly than the inheritance tax threshold. There are 2.3 million properties in the UK valued at more than the inheritance tax threshold.

"We call on the government to raise the inheritance tax threshold to GBP460,000. That would account for the significant rise in house prices over the past eleven years. We also call on the government to commit to increase the inheritance tax threshold in line with house price inflation in the future."

"We don't dispute the right of the government to collect inheritance tax. We do believe that an asset should be taxed at a fair value."


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