4.2m Paying Inheritance Tax by 2020

The number of UK households paying inheritance tax (IHT) is expected to triple if government policy does not change, according to new research.

Inheritance tax is charged at 40 per cent of all assets passed on over its lower threshold of £285,000 (for 2006/7).

Around eight per cent of all owner-occupied properties (1.5 million) are currently valued at more than the lower threshold but forecasts from the Halifax building society expect this figure to rise to 4.2m by 2020.

This would mean a 244 per cent increase in inheritance tax (IHT) revenue collected by the chancellor – from £1.6billion in 1996/7 to an estimated £5.5 billion (2020).

If the government had increased the IHT threshold in line with house price inflation (176 per cent) over the last ten years the threshold would be £425,000 rather than the current £285,000 (only an 85 per cent increase).

"Since 1996/97 there has been a sharp increase in the number of estates paying inheritance tax and also the number of properties valued above the inheritance tax threshold," said Martin Ellis, chief economist at Halifax.

"Modest increases in the threshold have lagged well behind the increase in house prices."