Inheritance tax thresholds raised

Inheritance tax thresholds will rise to £300,000 by 2007/2008

The inheritance tax (IHT) threshold is to be increased from £263,000 to £275,000 from April, Chancellor Gordon Brown has announced in the Budget.

Further increases will kick in during 2006 and 2007, taking the threshold first to £285,000 and then to £300,000 - both above-inflation increases.

Increasing house prices mean that far more estates are subject to inheritance tax now than were a decade ago.

But the chancellor said that 94% of estates would pay no inheritance tax.

Above-inflation increases

The increase to the IHT threshold is a long way above inflation and very welcome Simon Massey, Menzies

It is unusual for the chancellor to increase the threshold by this much - previous increases have been roughly in line with inflation.

Rising UK house prices have meant that a far greater proportion of estates now qualify for inheritance tax.

Overall, the percentage of homes sold for more than the IHT threshold has risen from just 3% in 1994 to 14% in 2004.

New inheritance tax thresholds 2004/2005 tax year £263,000 2005/2006 tax year £275,000 2006/2007 tax year £285,000 2007/2008 tax year £300,000

Some calculations suggest that the IHT threshold would be £390,000 if it had risen in line with house price inflation over the past 10 years.

"The increase to the IHT threshold is a long way above inflation and very welcome," Simon Massey, a partner at chartered accountancy firm Menzies, told BBC News.

"IHT has become a growing political issue as many middle income Britons faced being drawn into the IHT net unless the thresholds were raised. It is good to see something being done."

But not everyone was impressed by the increase to the IHT threshold.

Glenn Collins, a spokesman for the Association of Certified Chartered Accountants, said it "did not go far enough".

Mr Collins said the government should have used the estimated £500m it will cost to raise the threshold to £300,000 by 2007 to make people's main residence exempt from IHT.