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Inheritance tax threshold fails to keep pace with house prices

  • 08/05/2002
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More homeowners will be liable for Inheritance Tax (IHT) following a surge in house prices which has...

More homeowners will be liable for Inheritance Tax (IHT) following a surge in house prices which has not been matched by an increase in the IHT threshold, according to Halifax.

Research has indicated the IHT threshold has increased by 16% over the past five years compared with a 52% increase in house prices, leaving 1.4 million homeowners liable for the tax.

IHT is currently charged on inherited assets ‘ including residential property ‘ over £242,000 at a rate of 40%.

Martin Ellis, group economist at Halifax, said: ‘Hundreds of thousands of households are, for the first time, in danger of paying Inheritance Tax simply because the tax threshold has not kept pace with rises in house prices.’

Despite the threshold increasing to £250,000 in the recent Budget, 8% of residential properties still fall above that amount, compared to 3% in 1997.

‘Because Inheritance Tax is an avoidable tax, homeowners need to arrange their tax affairs to minimise their Inheritance Tax liabilities,’ Ellis said.

One means of avoiding IHT is the utilising of an equity release plan. By taking out a plan and investing the money into a trust, the money will be paid to a beneficiary free of IHT on the death of the remaining homeowner.

Mark King, managing director of Crown Equity Release, said: ‘You can get around Inheritance Tax with equity release. If you have £250,000 in savings and assets and a property worth £500,000, you will have to pay tax on over £500,000. By arranging an equity release plan for £200,000, the client can put the money into a whole of life policy written in trust, then on death the benefit will be paid to the beneficiaries free of tax. If the occupants sell part of the house through an equity release plan they will lose the value of the house, but the heirs will get a cash lump sum, tax-free through the whole of life plan.’

For more information on Inheritance Tax visit


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