HALIFAX, England, July 22 /PRNewswire/ --
New Halifax research, based on data from the Inland Revenue, shows that inheritance tax revenue hit a record GBP1.7bn in first half of 2006, up GBP200m or 13% from the first half of 2005.
The amount of inheritance tax (IHT) revenue collected in the first half of 2006 matches total IHT revenue collected over the full financial year 1997/98, only eight years ago. Last financial year (2005/06) the government collected GBP3.3bn in inheritance tax revenue and projects GBP3.6bn in revenue in the current financial year (2006/07).
20% of properties projected above IHT threshold by 2020
Halifax estimates that the number of properties in the UK valued at more than the 2006/07 inheritance tax (IHT) threshold of GBP285,000 now stands at 1.5 million, or 8% of all owner-occupied properties. Halifax projects this will nearly triple to 4.2 million properties by 2020 if the threshold is only increased in line with retail price inflation(1).
Annual inheritance tax revenue projected at GBP5.5bn by 2020
Halifax projects that the revenue collected by the Exchequer from IHT could rise to GBP5.5 billion a year in today's money by 2020. That is a 244% increase from the GBP1.6bn the Exchequer received in 1996/97, the last time the IHT threshold was raised significantly.
IHT threshold would be GBP430,000 if linked to house price movements
Successive governments (both main political parties) have failed to increase the IHT threshold inline with house price growth. Halifax calculates that the 2006/07 IHT threshold of GBP285,000 would now be GBP430,000 if it had been increased in line with house price inflation over the past ten years. House prices have risen by 179% in the past ten years, compared with just an 85% increase in the IHT threshold. At present the inheritance tax threshold is projected to rise very gradually to GBP325,000 by 2009/10.
(1) Calculation takes into account threshold rises already announced up to 2009/10
Tim Crawford, Group Economist at Halifax, said: "Inheritance tax revenues are clearly on the rise and the GBP1.7bn collected in the first half of this year matches the total inheritance tax take from the whole of the financial year in 1997/98.
"Inheritance tax revenues have risen because the threshold for the tax has failed to keep pace with the rise in property prices over the past ten years. More and more homes are now valued above the threshold and more estates are now potentially liable for the tax. We call on the government to raise the inheritance tax threshold to GBP430,000 to account for the increase in property prices over the past ten years."
Editors' Notes
The house price data in this report is sourced from the Halifax House Price Index - the UK's longest running monthly house price series with data covering the whole country going back to January 1983.
Background on Inheritance Tax
Successive governments (of both main political parties) have increased the IHT threshold on an ad hoc basis. Over the period 1997 to 2004, the IHT threshold was increased broadly in line with retail price inflation; rising by 22% against a 19% increase in the RPI and 129% growth in house prices. In 2005, the threshold was increased by 5% to GBP275,000 with a further 4% rise seen in April 2006 to GBP285,000. The government has scheduled further small increases in the threshold up to GBP325,000 by 2009/10.
The revenue raised by the government through IHT has risen by GBP1.7bn since 1996/97 from GBP1.6bn to GBP3.3bn in 2005/2006. (Source: Inland Revenue.) Around 6% of estates are estimated to pay IHT this year (35,000). The number has more than doubled since 1996/97 (15,000). (Sources: Inland Revenue). About 40% of taxpayers, accounting for half of IHT revenues, reside in London and the South East, according to two special exercises carried out by the Inland Revenue. (Regional figures are not normally available.)
The IHT threshold has risen by 85% since 1995 from GBP154,000 to GBP285,000 in April 2006. There was a 30% rise in April 1996 from GBP154,000 to GBP200,000. Since then the IHT threshold has broadly risen in line with RPI.
House prices have risen by 179% over the past 10 years. The average price now equates to 62% of the IHT threshold compared with 40% ten years' ago. A single flat rate of 40% was introduced for IHT in March 1987. Prior to this date there were a number of tiered rates.
See: http://www.hbosplc.com/media/inheritancetax.asp
The data is prepared from information that we believe is collated with care, but we do not make any statement as to its accuracy or completeness. People seeking to place reliance on the information for their own or third party commercial purposes do so at their own risk.
