More families are paying inheritance tax than ever as booming property prices swell the value of estates past tax thresholds.
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Despite Prime Minister David Cameron promising to increase the threshold where families pay IHT to £1 million, three times more families are paying the tax than when he came to office six years ago.
The government’s Office for Budget Responsibility (OBR) reckons 40,100 families will pay the tax this year and that this will step up to 45,100 in the 2016-17 tax year.
However, the number is expected to fall from April 2017 onwards when a family home worth up to £350,000can pass to children outside of the IHT tax regime.
Nevertheless, the number of families paying IHT now is at the highest level since Margaret Thatcher’s era.
Estates rise as tax threshold stays the same
The number of estates having to pay IHT has risen from2.6% of all deaths in the 2009-10 tax year to7.1% in the current tax year, rising to 8% next year.
The main driver increasing the value of family estates and pushing them above the £650,000 nil rate band threshold is rising house prices, mainly in London and the South East.
While house prices have increased significantly since 2009, the IHT nil rate band has remained anchored at £325,000 for individuals and £650,000 for couples.
According to the Office of National Statistics, house prices in the capital have shot up by almost two-thirds to an average £531,000 since then.
IHT is paid at 40% on the net value of an estate worth more than the nil rate threshold.
Tax receipts keep rising
The Treasury has estimated that the tax will be worth £4.4 billion in 2015-16.
Although IHT rules change to increase the threshold for parents passing on the family home to their children when they die from April 2017, other less heralded changes make IHT payable by foreign owners as well.
Other rules mean excluding some allowances have altered the way IHT is calculated
The OBR expects the number of families trapped in the IHT tax net to drop by 2020, but the amount of IHT collected by The Treasury to rise to more than £5 billion as house prices keep increasing.
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