Ten million families face being caught by inheritance tax from this year because Gordon Brown has failed to increase the tax threshold in line with soaring house prices.

An estimated 41 per cent of households — amounting to about 10 million homes — are estimated to be sitting on an estate that would attract death duties, which kick in on inheritances worth £285,000 or more.

According to Scottish Widows, the investment firm, a year ago only 34 per cent of homes were liable, and unless Treasury policy changes, a majority of people will end up having to pay when parents or other relatives die.

Inheritance tax amounts to 40 per cent on every penny after the total value of an estate surpasses £285,000. Property owned typically makes up the lion’s share of any estate, meaning that their value is closely linked to the state of the housing market.

Property prices increased by 6 per cent last year, and the average home in the South East is worth in excess of £285,000. Meanwhile, in the last Budget, the Chancellor increased the tax threshold by 3.6 per cent, which contributed to the rising “death tax trap”.

The data comes a day after an analysis commissioned by The Times revealed that a million extra people had been drawn into paying the top rate of income tax since Gordon Brown took over as Chancellor in 1997, for similar reasons. The higher-rate threshold has risen more slowly — by 31 per cent — than the 50 per cent increase in earnings over the period.

Anne Young, a tax expert at Scottish Widows, said: “IHT is a tax that affects almost half of the country and it is really important that people prepare for the possibility of leaving a huge tax bill on their death.”

With most people having limited savings, the effect of the tax bill means that heirs sell a family home, often shortly after the loss of a parent. The tax has to be paid in cash six months after the end of the month in which the death occurred, leaving only a limited period to meet the liability by other means.

Scottish Widows estimated that 1.2 million people have earmarked just over £100 billion to give away in an attempt to ensure that children are not saddled with large bills. It is possible to gift up to £3,000 per tax year to younger relatives, and if the donor lives for seven years after a larger gift is made, that too is tax exempt. According to Scottish Widows, about half of the gifts made are intended to be used to help people to get on to the property ladder.

The statistics left the Treasury unmoved. Yesterday, the Government department said that “no previous administration has ever linked tax thresholds to price movements of any particular asset, such as housing” — although political pressure for a review is likely to increase as more people pay the bill.

Inheritance tax raised £1.7 billion for the Treasury in the first half of last year, a figure that is projected to rise rapidly. However, at this stage the numbers of people actually paying the bill remains small; 37,000 are expected to need to meet death duties in 2006-07, roughly double the figure back in 1997-98.

Separately, Compass, a think-tank linked to the Labour Party, called for taxes to be increased in line with the rates charged in Scandinavia, although the organisation says that the tax bill faced by the worse off is too high.

However, there is little prospect for a significant increase in the proportion of tax taken by the Chancellor.

The Compass report called for the tax system to be rebalanced to place a larger share of the burden on the rich.

Its authors rejected claims that higher taxes would harm the economy, arguing that world economic growth was in fact faster during the period of “managed capitalism” between 1960-78, at 2.7 per cent annually, than the 1.5 per cent average achieved during the “neo-liberal” period from 1979-2000.

The report, entitled A New Political Economy, draws on discussions by a working group including Labour MP Jon Cruddas, a candidate for the party’s deputy leadership.

It calls for the reform of the IMF and the World Bank to encourage fair trade, manage global capitalism more effectively and control carbon emissions. It argues for a gradual increase from the current 40 per cent of GDP taken in tax to levels as high as Sweden’s 51 per cent. It proposes an annual wealth tax, the repeal of the upper earnings limit on National Insurance and the scrapping of some tax allowances to reduce inequality.

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