Although the Chancellor announced the inheritance tax threshold would rise gradually to £325,000 in 2009/10, Halifax has expressed it’s disappointed that he failed to immediately raise the threshold further, and believes an opportunity has been missed to lift many ordinary people out of reach of this outdated levy.

Halifax calculates that the 2006/07 IHT threshold of £285,000 would now be £425,000 if it had been increased in line with house price inflation over the past ten years. House prices have risen by 176% in the past ten years, compared with just an 85% increase in the IHT threshold.

We estimate that the number of properties in the UK valued at more than the 2006/07 inheritance tax (IHT) threshold of £285,000 now stands at 1.5 million, or 8% of all owner-occupied properties. Halifax projects this will more than triple to 4.6 million properties by 2020 if the threshold is only increased in line with retail price inflation.

More detached property owners are potentially liable to pay IHT than five years ago, with almost one in three (29%) detached property sales in the UK above the 2006/07 IHT threshold of £285,000. Five years ago, only 13% of detached properties were sold above the then IHT threshold of £234,000.

Halifax projects that the revenue collected by the Exchequer from IHT could rise to £5.6 billion a year in today’s money by 2020. That is a 249% increase from the £1.6bn the Exchequer received in 1996/97, the last time the IHT threshold was raised significantly.

This projected increase in IHT revenue will coincide with the largest intergenerational transfer of housing wealth in UK history. Halifax estimates that £360bn, in today’s money, of housing wealth will pass from one generation to another during the period 2006-20.

Martin Ellis, Chief Economist at Halifax, said: “Halifax is not disputing the right of government to collect inheritance tax. Rather, its premise is that the threshold for property taxes should be linked to the underlying movement of house prices. The threshold has simply not kept up with house price inflation, so consequently more and more households are potentially being caught in the net.

Inheritance tax is a tax intended for the few that the many now have to pay because of a failure to index link with house prices.”