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Last Updated: Thursday, 21 August 2003, 10:22 GMT 11:22 UK
Death tax traps 50% more
Out of pocket
Losing part of an estate to tax is more common

The number of people caught by inheritance tax has risen by more than 50% in the last five years, says the Consumers' Association.

Soaring house prices have outpaced increases in the inheritance tax threshold, at which tax is levied.

The rate is set by the government in each year's Budget, and only minor increases in the last five years, means many people who may not consider themselves "rich" have been brought within the inheritance tax band.

According to government figures, there has been a steady upward creep in the number of estates caught by inheritance tax, from 19,000 in 1998 to 29,500 in 2003 - a 55% rise.

Caught in the net

In the tax year 2003 to 2004 the first 255,000 of an estate is tax-free; everything else beyond this amount is taxed at 40% - and must be paid by the beneficiaries of the estate.

Cost of a typical detached property*
North: 173,053
North West: 196,606
Yorks & Humberside: 179,687
Wales: 153,806
West Midlands: 214,560
East Midlands: 184,558
East Anglia: 198,387
South West: 246,070
South East: 322,565
Greater London: 515,720

Average price between April and June 2003. Source: Land Registry.

Five years ago, the average UK house price was just over 72,000, which was around a third of the estate value at which inheritance tax kicked in.

In 2003, the average house price has risen to 127,000 - almost half the inheritance tax threshold.

People living in London, the south east and south west are most likely to be caught out.

According to the Land Registry's most recent survey, the average price of a detached property in London was 515,720; in the south east 322,565 and in the South West 246,070.

With a bit of forward planning, in many cases a tax bill can be reduced or avoided altogether
Jonquil Lowe, Which? author

The UK government recently cracked down on the use of trusts to minimise inheritance tax liabilities.

In recent years it had become increasingly attractive for homeowners to shelter their estates from the taxman through trusts

But the government has now said homeowners who set up a trust to shelter an estate from IHT, can no longer live in the home after it has been gifted.

Jonquil Lowe, author of the Which? Guide to Giving and Inheriting, said: "Following years of rising house prices, inheritance tax can bite deeply into even relatively modest estates.

"Yet, with a bit of forward planning, in many cases a tax bill can be reduced or avoided altogether."

Despite the increase, the Inland Revenue said inheritance tax affected around only 5% of the UK's estates, and the threshold was still above the average house price in the UK.

Your comments:

Inheritance tax is an iniquitous tax. Why should people's possessions, which they have paid for out of taxed income, be taxed AGAIN when you die? Taxing things which people have already bought and paid for just because they wish to pass them on to others is totally unfair. If a parent gives their child something in their will and it is taxed, how is that different from taxing a Christmas present they may have given them when they were alive? There is no justification for it whatsoever, and the fact more and more people are being caught is a disgrace, yet another stealth tax. Abolish it now!
Jon Cooper, uk

The tax-free amount should be raised. It is a disgrace that people should have to pay yet more tax. People work hard all their lives, paying tax. Their benefices should not then have to pay yet more tax.
Tim, London, UK

Many people who are not cash rich are probably forced to sell their houses in order to pay their inheritance tax. It's disgusting that at a time of grief and tragedy, this stress is inflicted. I also agree that it is grossly unfair to tax again, goods that have already been taxed. Down with inheritance tax!!
Richard Madgin, UK

You pay your mortgage and deposit from your net income (which has already being taxed). You pay stamp duty (once again tax) ranging from 1% to 4% for the purchase of the property. And when you die the government tax you again because you were a good citizen who decided to look after his family. No wonder the tax system discourages people from saving and make them reliant on the state benefits
Murali Nair, UK

What is even more insulting is that the Queen is exempt from this tax. Last year, 20 million of the late Queen Mother's estate was given to her incumbent daughter. That's 8 million of inheritance tax swept under the carpet by a silly law passed in 1993 by the Conservative government.
Szczepan Chyb, UK

It's easy to complain about high IHT but which taxes would you want to raise to compensate for any lost income? It's always going to be easier to tax the dead!
David, UK

Inheritance tax is no more or less fair than any other tax. Indeed inheritance under the current system only serves to perpetuate inequality. That said people quite naturally want to provide for their children. The solution is obvious: The total value of the estate should not be taxed. The amount each recipient is given should be taxed. Thus an estate split between several children would be taxed less than a estate given to a single person.
Ben Hodgson, England

The problem with inheritance tax is that the government isn't taxing the dead, its taxing the bereaved. How can that possibly be justified?
Kaye, UK

This may not be a popular point of view but why should we be able to inherit large sums of money for which we have made no contribution. The rich will just get richer and the poor poorer. If you want some money, then work hard for it, don't expect it to be handed down to you for nothing. I would increase the rate of inheritance tax to pay for greater care for the sick and elderly.
Neil, UK

The tax should be far higher. Somebody from a well off family already has a great advantage in life. Why should that inequality be increased based only on who your relations are? Raising the tax and closing the loopholes could lead to a much fairer society.
Nick, England

You can't have your cake and eat it. During periods where house values rise faster than inflation (and at 20% pa this basically equates to free money), this will happen. It's not a problem in itself and the threshold doesn't need to be raised. There is probably a need to introduce measures to allow flexible payment for the tax though, so that family homes do not need to be sold off.
Lee, UK

Everyone seems to agree that IHT is a nasty tax. Abolish it, though, and the Chancellor will need to get the revenue from somewhere - any suggestions? Increase VAT or the standard rate of tax? Equally unpopular.
Eamonn, UK

I believe it is absurd of the people who receive this amount of money not to consider themselves 'Rich'. Lets face it most people in this country would agree, that to be simply given 1/4 million without having it taxed is ridiculous. This money has not be earned by the children and is income. They should stop complaining about it and be grateful their parents were able to provide for them!
Andy, UK

The attack on trusts is in my opinion time for a test case in the European Court of Justice. The reason trusts have to be used is because of the archaic legal system we have. If we adopted the Continental legal system, it is easily possible to register different interests in property. This is prevented by UK Land Act. What we have here is a case of people contributing 40% taxes, 17.5% VAT on nearly everything they buy, stamp duty and council tax on their property and then another 40% hit on death. There should be a constitutional limit to tax (as in Germany) of a maximum of 50% (although I might add that it has been exceeded there as well).
Alex, UK

Why should my children inherit tax-free my wealth when I die, when they have done nothing to earn it? Many estates are swollen by (Capital Gains Tax free) boom in property prices in any case. IHT is a tax on the better off, any switch in tax to the general population would be regressive. The current balance is if about right, if anything the 255,000 threshold is too high. One idea for improvement might be to tax each bequest rather than the estate as a whole: smaller bequests would be untaxed.
Patrick Hearn, UK/EU

The thing that most people overlook with inheritance tax is that it is a relatively easy tax to avoid. In the vast majority of cases with proper advice and planning it is possible to completely avoid the tax whilst still retaining control of assets. If people choose not to take the advice that enables them to eliminate liability to IHT then it hardly seems fair to blame the government for their own inertia.
Ian Osang, UK

Taxes pay for security, education, roads, health etc. Paying taxes is similar to giving to charity except its selfish. Inheritance tax is the fairest of all the taxes because the children have done nothing to earn the income. An efficient country will reward its most valuable residents. A true meritocracy depends on rewards going to those who have earned them.
Jeremy Parsons, UK

The nil-rate band used to be quite fair, covering something in excess of 95% of all estates. It is only the increase in the housing market which has produced the problem. One really simple answer would be to make one's principal private residence IHT-free, like it is Capital Gains Tax-free.
Orlando, UK

Tax isn't a punishment, it's a contribution to the society to which you belong. It's the society that creates the opportunity for wealth. We want better education, infrastructure, health care, pensions etc. yet we vote out those who would charge us the required Taxes. If we're not prepared to pay it when we're alive then we should pay it when we're not. Only the greedy would consider 250K tax free unfair - some perspective is required here.
Nathan, UK

We all instinctively want to pass on as much as we can to our children but on the other hand not many of us would agree with the concentration of wealth in fewer and fewer hands. It's a matter of getting the balance right.
Malcolm, UK

To say IHT is a tax of the rich is absolutely absurd. The rich are only too aware of how to exploit the loop-holes in the law to avoid IHT. Which means the vast majority of people hit are those who are unaware of these loop-holes. Proof of this can be found with the Queen who avoided IHT. It is a tax of the poor and an is avoided by the rich. The richer you are, the less tax you pay!
Ben, England

Re Lee's point - the inheritance tax on a property can be paid in ten annual instalments or until the property is sold.
Paul Franklin, UK

I keep reading that the goods inherited have been paid for out of after-tax income and should not be taxed "again". Well each time money moves around the economy to a new recipient it is taxed, that is the way our economy works, and there is no reason why inherited wealth should be any different. In fact I don't see why someone should be able to get 1/4m tax free just because they had rich ancestors whilst those who work for their money pay tax on everything above 4k. I would tax all inheritances as income of the recipient, i.e. fully taxable at up to 40% like all other income. That would help pay for a few hospital beds.
Louise, UK

IHT can easily be avoided by forward planning, done in conjunction with a good accountant. A small amount of money invested now will save a whole lot more later, because the Chancellor is not about to get generous with this tax.
Colin Askew, UK

The inheritance tax should be increased to increase social justice. Why do rich people's siblings deserve such a massive head start in life when there are millions of people living on the breadline?
Alex Hodbod, GB




SEE ALSO:
Crackdown on property tax loophole
20 Jun 03 |  Business
Homeowners caught in tax trap
08 Nov 02 |  Business
Inheritance tax: Q&A
22 Oct 02 |  Moneybox


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