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Inheritance tax and Stamp Duty - the key facts from the Halifax

20th March 2007 Print
Property tax revenues - including inheritance tax and stamp duty - in the UK are the highest (along with the US) in the OECD. Property taxes as a percentage of total taxes in the UK have risen from 10.4% in 1995 to 12.0% in 2004 according to the latest statistics. The average for the Euro-zone is 5.3% and the UK's 12.0% compares with 8.1% in Spain, 7.6% in France and 2.5% in Germany.(source: OECD).

UK property taxes are also equivalent to 4.3% of Gross Domestic Product (GDP), the highest percentage of any major developed country. (source: OECD).

Inheritance tax

Over the five years to 2007/08 Halifax calculates that total cumulative inheritance tax (IHT) revenue will be £16.4bn, up more than 50% from the £10.8bn raised by the government in the previous five years. Revenue raised in 2006 was a record £3.5bn, up £375m (12%) on 2005 when £3.1bn was collected. The government's own projections are for annual IHT revenues to reach £4.1bn in 2007/08.

IHT threshold has not kept pace with house price inflation

Since 1995/96 house prices across the UK have increased by 199%, more than double the increase in the IHT threshold, up 95% to £300,000 for 2007/08. If the threshold had increased in line with house price inflation since 1995/96, it would be now be at a level of £460,000, more than 50% above the 2007/08 £300,000 IHT threshold.

Number of properties valued above IHT threshold nearly doubles over five years

Halifax estimates that the number of owner occupied properties in the UK valued at more than the 2007/08 IHT threshold of £300,000 now stands at 2.3 million, or 12% of all owner-occupied properties. In 2001 only 1.3m properties or 7% of owner occupied properties were valued above the then IHT threshold of £242,000. If the IHT threshold was increased to £460,000 only 4% (780,000) of properties would be valued above the threshold.

4.3 million properties potentially liable for IHT by 2020

Halifax projects that the number of properties valued above the IHT threshold across the UK will rise by a further 88% or 2.0m by 2020 to 4.3 million properties if the threshold is only increased in line with retail price inflation*. On this basis the number of postcode districts in England and Wales with an average house price above the IHT threshold would more than double to 480 in 2020 from 236 in 2006 and account for 23% of postcode districts.
*calculation takes into account threshold rises already announced up to 2009/10

Average detached house across UK above IHT threshold

The average price of a detached property in the UK, at £326,396, is above the inheritance tax threshold of £300,000. By region the average detached property is above the IHT threshold in London (£697,625), the South East (£453,876) and the South West (£336,330). Five years ago only London (£392,135) and the South East (£269,080) had an average detached house price above the inheritance tax threshold.

Stamp Duty

Total stamp duty revenue from residential property sales was £4.6bn in 2005/06, up 114% from the £2.1bn raised in 2000/01. 89% of the rise in the residential stamp duty take over the five years was due to an increase in the amount raised at the higher stamp duty bands (3% on sales between £250,000 and £500,000 and 4% above £500,000).

Stamp duty revenue raised from sales of properties valued at more than £250,000 rose by 175% from £1.2bn in 2000/01 to £3.4bn in 2005/06. The higher stamp duty bands accounted for 74% of total residential stamp duty revenue in 2005/06 compared with 58% in 2000/01.

3.5 million properties valued above 3% stamp duty threshold

Halifax estimates that 3.5 million (19%) English and Welsh properties are now valued above the £250,000 stamp duty threshold; and 600,000 (3%) are valued above the £500,000 threshold. London and the South East account for 64% of homes valued above £250,000 and 77% of homes valued above the £500,000 threshold.

Higher stamp duty bands unchanged since 1997 despite 175% increase in house prices

The higher stamp duty thresholds - £250,000 and £500,000 – have been unchanged since their introduction in 1997 despite a 175% increase in the average house price over the period. The 1% stamp duty threshold was increased from £60,000 to £120,000 in March 2005 and then rose by a further £5,000 in March 2006. However, even these increases have not kept up with the pace of house price inflation. House prices have increased by 205% since March 1993 (when the 1% threshold was raised to £60,000) compared with a 108% rise in the stamp duty threshold.

Stamp duty thresholds should be indexed for house price inflation

If the higher stamp duty thresholds had been increased in line with house price inflation since July 1997 (when the £250,000 and £500,000 stamp duty thresholds were introduced), the £250,000 threshold would now stand at £680,000 and the £500,000 would be £1,360,000. If the lowest stamp duty threshold, 1% had been increased in line with house price inflation since March 1993, it would now stand at £185,000, compared to its current level of £125,000.

Tim Crawford, Group Economist at Halifax, said: "The revenue generated from property based taxes continues to increase and bracket creep has been a key factor. The thresholds at which inheritance tax and, particularly the higher stamp duty bands, are levied have lagged well behind the increase in house prices over the past decade.

We call on the government to raise the stamp duty and the inheritance tax thresholds in line with the increase in house prices over the past decade."