MORE than 9m UK homeowners will still be liable for a 40% tax bill on their death despite a rise in the inheritance tax (IHT) threshold last week, writes Philip Scott.

On Friday, the start of the new tax year, the allowance went up from £285,000 to £300,000.

About 5m homeowners in Britain have properties valued at more than £300,000, according to Scottish Widows, but when total household wealth is taken into account a further 4.5m cross the IHT threshold. This means that nearly four in ten are liable.

Only 4% of estates will drop below the threshold because of the increase.

The threshold is set to rise to £350,000 by 2010, but this will still leave many people with a problem if house prices continue to rise at their present rate.

Scottish Widows said: “Gordon Brown trumpeted a rise in the allowance but the fact is that millions of families will fall into the IHT net simply because of a rise in the value of their homes.”

Successive governments have failed to keep IHT thresholds in line with house prices. According to Scottish Widows, if the threshold had risen in line with house prices since 1988, when the limit was £110,000, it would now be at almost £419,754.

The easiest way to avoid IHT is to make gifts. Every tax year you can give away £3,000 that won’t count towards your estate. If a gift is regular, comes out of income and does not affect your standard of living, any amount can be given away as long as you survive for another seven years.