Halifax research, based on recently released data from HM Revenue & Customs, shows the total number of estates paying inheritance tax (IHT) rose by 72% over the five years to 2003/04 to 30,451.
The Government's own estimates suggest a further 22% increase in the number of estates paying the tax by the end of 2006/07. More estates are now paying IHT as the threshold for the tax has failed to keep pace with the increase in property prices over the past decade.
The number of estates with a value of less than £500,000, paying IHT rose by 75% over the five years to 2003/04 to 21,750; these estates now account for 71% of all estates paying IHT. In 2003/04, 8% of all estates worth less than £500,000 paid IHT, up from only 5% in 1998/99; the average amount of IHT paid by these estates was £31,393. Estates valued less than £500,000 accounted for 25% of total IHT revenue in 2003/04, £683m.
Estates worth more than £2,000,000 accounted for just 19% of total IHT revenue in 2003/04, £526m, down from 23% of total IHT revenue in 1998/99. Estates valued between £500,000 and £1,000,000 generated the most IHT revenue in 2003/04, £921m, or 33% of the total.
Last financial year (2005/06) the government collected £3.3bn in IHT revenue and projects £3.6bn in revenue in the current financial year (2006/07). Over the past five years there has been a 49% increase in IHT revenue.
Tim Crawford, Group Economist at Halifax, said: "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."
