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Life insurance must cover inheritance bill

Date: Tue, 21 Mar 2006

The growing burden of inheritance tax means that people considering life insurance need to ensure they have adequate cover.

Halifax predicts that the UK's inheritance tax bill could almost triple to £5.6 billion by 2020 but many people are unaware their estates could be hit by the tax.

Inheritance tax is currently charged at 40 per cent of the value of all assets above the £275,000 threshold. However, this threshold is set to rise to £285,000 next month.

The property boom means that many families are now facing possible inheritance tax especially as house prices have risen significantly faster than inflation. Halifax estimates that house prices have increased by a staggering 356 per cent over the last two decades, whilst inflation has risen by only 102 per cent.

The strong housing market means that around 1.5 million UK properties are now valued above the inheritance tax threshold and this could increase to around 4.6 million homes by 2020 unless the current threshold is significantly revised.

"Inheritance tax revenues are likely to rise significantly over the next 15 years if the government doesn't index the threshold in line with house price inflation," said Tim Crawford, Halifax group economist.

Whilst life insurance does not reduce the amount of inheritance tax loved ones will have to pay, it could ensure there is enough money available to pay the bill.


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