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Last Updated: Thursday, 16 February 2006, 15:44 GMT
London: Inheritance tax
Tim Donovan
Tim Donovan
Political Editor BBC London

London skyline
Taxing for Londoners?

The house-buying season is upon us and London's house prices continue to rise fuelled further by the Olympic effect.

One in three UK homeowners will now be subject to a 40% inheritance tax, research suggests.

The result - as a recent survey by Scottish Widows shows - is that half of London's homeowners will leave a liability to their children to pay inheritance tax of 40% on at least part of their property.

This is hitting the average Londoner and some will be forced to sell the inherited house to pay the tax within six months of death.

Opposition politicians and even some Labour voices have warned about this time bomb, and called for changes or outright abolition of the tax.

The survey of over 2,000 homeowners found most were unaware of the limit and 73% of those liable for the tax had done nothing to lessen the bill.

Top areas for inheritance tax
Windsor & Maidenhead
Surrey
Buckingham
Greater London
Wokingham

The government is expected to earn 3.4bn in inheritance tax this year.

Anne Young, tax expert at Scottish Widows, said: "For many people it is possible to cut or even completely avoid Inheritance Tax Threshold (IHT) with just a few simple steps.

"The first and most obvious of which is to make a will.

"Inheritance tax is levied at 40% - planning now could save thousands."

As well as making a will she recommends leaving property in a trust of some kind.

The average household wealth now stands at 258,000, according to the study.

The wide regional variation in house prices mean that the tax affects people in London and the South East in particular.

Zia Trench speaks to an average income homeowner who falls into the bracket; tax expert John Whiting and the Conservative MP for Enfield South, David Burrowes.

The Politics Show London

Join the Politics Show on BBC One on Sunday 26 February 2006 at 11.55am with Tim Donovan.

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