More people within the inheritance tax net

The number of households liable for inheritance tax has risen from 34 per cent last year, to 41 per cent. So we learn from research carried out for the Scottish widows. See the press release here (pdf).

Surely this should now bury the popular misconception about inheritance tax being a tax 'for the rich'. There is no way that 40 per cent of households in this country can be described as 'rich'. The Government repeatedly insists that the true percentage is 6 per cent. Heaven knows where they get this figure from.

The rise in house prices is one of the main reasons for many households falling within the inheritance tax net. Add to that the fact that the nil rate band (within which property is taxed at zero percent) has only risen in line with inflation. The nil rate band is increased every year by Uncle Gordon. It currently stands at £285,000. This means that the first £285,000 of taxable property is taxed at zero percent. Anything exceeding that is taxed at 40 per cent. In the South of England, the average house is worth at least £285,000. The implication of this is that the average homeowner is potentially liable to inheritance tax, once the family home is taken into account.

Were the nil rate band to be increased in line with the rise in house prices, rather than with inflation, it would be a lot higher than £285,000, and many more households would escape the inheritance tax net.

Last year, the nil rate band increased by 3.6 per cent, to £285,000. House prices, on the other hand, increased by 31 per cent. The nil rate band is clearly not keeping pace with the growth in property value, and for a tax based on property value, this is certainly an absurd state of affairs.