Rising house prices are pushing millions of UK homeowners into the Inheritance Tax (IHT) net, according to accountancy firm PricewaterhouseCoopers (PwC).

At present an estate has to be worth in excess of �250,000 before IHT is levied at a rate of 40%.

But house prices, particularly in London and the South East of England, have risen so far and so fast that the average home now accounts for nearly all the tax-free allowance.

Anyone except a spouse is liable to IHT if they inherit an estate valued above the tax threshold.

Tax bills loom

The main effect of rising house prices will be that increasing numbers of children will have to pay the 40% tax when they inherit their parents estate.

In the last Budget the IHT threshold was increased by 3.3% from �242,000 to �250,000.

However, annual house price inflation is running at close to 20%.

The equation is simple - house prices are fast catching up with the IHT threshold.

PwC estimates that today the average house price is nearly half the IHT threshold, while in 1997 the figure was under a third.

In London nearly nine out of 10 houses for sale are valued at or above the current IHT threshold.

Eighties housing boom

However, greater numbers were pushed into the IHT net during the late-eighties housing boom.

How to limit IHT liability

Gift money and shares to beneficiaries seven years prior to death. Put investments into trust. Take out life insurance to cover IHT bill.

Back in 1989, according to John Hawkesworth, head of macroeconomics at PWC, 60% of UK homes were worth more than the tax threshold.

"Were still not at these levels yet - mainly because the IHT threshold was increased by nearly 25% in 1996 at a stroke moving millions of homes out of the IHT bracket," Mr Hawkesworth told BBC News Online.

Box clever

PwC is predicting that 1989 levels will be exceeded by 2020, if current trends continue.

By then the average London home will be worth more than the tax threshold.

Mr Hawkesworth believes homeowners need to box clever with the taxman to limit IHT liability after their deaths.

"Homeowners could look at gifting money prior to death and putting investments into trust to reduce the eventual tax bill." he said.