The number of properties in the UK valued at more than the inheritance tax (IHT) threshold (£275,000) now stands at an estimated 2.1 million or 12% of all owner-occupied properties, according to the Halifax.

The bank said there had been an almost three-fold increase in the number of properties above the threshold over the past five years from 800,000 in Q3 2000 to 2.1 million in Q3 2005.

The inheritance tax take is expected to more than double between 1996/97 and 2005/06, from £1.6bn to a projected £3.4bn, according to the government's own estimates. A properly drawn Will, together with professional tax advice, are key factors in ensuring that owner occupiers effectively manage their tax liabilities, said the Halifax.

At a local level, Halifax calculates that the average house price is now above the threshold in one in ten local authorities (LAs). Five years ago, the average house price was above the then threshold of £234,000 in only one in 50 LAs.

Currently, people have to pay tax at a 40% rate on inherited assets worth more than £275,000.

That threshold is scheduled to rise to £300,000 in the tax year 2007/08.

Halifax calculates that the IHT threshold of £275,000 would now be £406,600 if it had been increased in line with house price inflation over the past 10 years. House prices have risen by 164% in the past ten years compared to only a 79% increase in the IHT threshold.

The South of England is the main source of inheritance tax revenue…for now

Sales above the IHT threshold account for at least 25% of transactions in 62 (16%) LAs. 17 (27%) of these LAs are in London and 28 (45%) in the South East.

Five years ago, only 18 LAs or 5% of the total had more than 25% of their sales above the IHT threshold then of £234,000.

At the moment 6% of sales outside southern England – London, South East, East and South West - are above the £275,000 threshold. West Midlands currently has the highest proportion of sales above the IHT threshold (7%) whilst Northern Ireland has the lowest proportion of sales above £275,000 (2%).

The bank said more properties in more regions were likely to move above the IHT threshold in the coming years.

One in three sales in London above threshold

More than one in three (31%) residential property sales in London are above £275,000. In the South East, almost one in five sales (19%) are above the threshold. One in three - 11 out of 32 - London boroughs have an average house price above the IHT threshold. Three in ten LAs in the South East have an average house price above the IHT threshold.