Research shows IHT threshold is too low

Posted: 07 Aug 2006 14:55:58 GMT

Data gathered by HM Revenue and Customs and analysed by the Halifax group shows that the amount of properties valued under £500,000 paying Inheritance Tax (IHT) has increased.

The total number of estates paying IHT rose by 72 per cent over a five year period up to 2003/04. By the end of 2004 the figure stood at 30,451 properties paying IHT. This is a substantial increase in the number of estates qualifying for the tax from previous figures.

The number of houses valued at under £500,000 paying IHT rose by 75 per cent over the monitored period to 21,750 properties. This equated to 25 per cent of the total tax bracket and contributed more to IHT revenue that estates valued at over £2 million.

Tim Crawford, group economist at Halifax, stated: "The steep increase in the number of estates paying inheritance tax highlights that the current inheritance tax threshold of £285,000 is too low. 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.

"This trend is set to continue unless the government raises the threshold in line with house price inflation. We call on the government to raise the inheritance tax threshold to £430,000 to account for the increase in property prices over the past ten years."

The government has scheduled increases to the threshold of up to around £325,000 by 2010 in an effort to appease those who believe the current system is unfair.

Tory think-tank the Bow Group recently offered up the idea of Land Value Tax (LVT) as an alternative to a range of taxes including IHT. However this too was widely criticised as heavily affecting middle price range households.


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