A north/south tax divide in the Britain means families living in London and the South East are paying much more inheritance tax than those living elsewhere.
HM Revenue & Customs (HMRC) has released data showing £2.6 billion was paid in inheritance tax (IHT) during in the tax year ending April 2011.
Analysis by financial firm Prudential revealed the average bill was £166,000 and half the tax paid came from those living in the capital and surrounding area even though the 15,600 estates liable for the tax were split evenly between both regions.
IHT is paid on estates worth more than £325,000 for a single person or £650,000 for a married couple.
Any excess above the thresholds is taxed at 40%.
Who paid IHT
The Prudential explained that higher property prices in London and the South-East pushed up the value of estates.
The average IHT bill in London was almost £235,000, just under £175,000 in the South-East but much lower farther north.
In the North-East, the figure was closer to £130,000, while estates in Wales paid a little over £125,000.
Adding in the South-West (£295 million) and the East of England (£251 million), London and the South paid £1.8 billion of the total IHT bill, which was split among 10,000 estates.
None of the other regions paid more than £200 million – with the North-West and Scotland paying the most out of the rest of the country at £154 million each divided between 2,100 estates.
Although Chancellor George Osborne pledged to peg IHT at 40% for the life of the current Parliament, during that time house prices have recovered, pushing the IHT tax take up to £2.9 billion in in the 2011-12 tax year and £3.1 billion last year.
IHT linked to house prices
The analysis by the Prudential shows IHT is linked to house price growth.
When prices peaked before the credit crisis in 2008, around 10% of all estates paid IHT. This dropped in line with property prices until 2011, when 6% of estates were liable for the tax.
The latest house price surveys reckon the average price of a London home is £450,000, which is £100,000 above the single person threshold and automatically attracts an IHT bill of £40,000.
However, the average price of a UK home is around £250,000, according to figures from the Office of National Statistics.
The ONS also pointed out that average house prices in London were rising more than twice as fast as in the Midlands and North.
