By 2020 one home in five (20 per cent) in England will be worth more than the inheritance tax threshold, new figures show.
And data from Halifax shows that already average house prices in one town in ten are above this minimum limit.
Inheritance tax takes 40 per cent of all money and assets passed on over its minimum threshold of £285,000.
And when rising house prices are combined with other wealth, more and more people are becoming liable to pay the tax.
Five years ago just four per cent of towns had an average house price above the tax threshold, which was £242,000 in 2001.
"The potential reach of inheritance tax is growing," said Halifax economist Tim Crawford.
"More and more homes are now valued above the threshold. Ten per cent of English towns have an average house price above the threshold, compared to only four per cent five years ago.
"We call on the government to raise the inheritance tax threshold to £430,000. Doing so would allow for the significant increase in property prices over the past decade.
"It would also ensure that many middle income home owners avoid a tax which was never intended that they pay in the first instance."
Some 96 per cent of the towns where the average property price is higher than the inheritance tax threshold are in the south of England.
Currently, Halifax calculates 1.4 million English properties are worth more than the 2006/07 inheritance tax threshold of £285,000.
More than a third of London boroughs (13 out of 32) have average house prices above this threshold, almost double the number of boroughs in 2001.
Halifax calculates that house prices have risen 179 per cent in the last ten years, while the inheritance tax threshold has risen 85 per cent over the same period.
If the tax threshold had kept pace with house price rises, it would now stand at £430,000, the bank calculates.