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Last Updated: Wednesday, 22 March 2006, 15:16 GMT
Inheritance tax to start at 325k
Thatched cottage
The government denies that rising property prices will push thousands into paying IHT
The government has decided to extend its policy of raising the threshold for the inheritance tax (IHT) by another two years.

Gordon Brown said that the thresholds would rise to 312,000 in 2008-9 and to 325,000 in 2009-10.

In the 2005 Budget Mr Brown had raised the level from which IHT is levied on inherited estates to 285,000 in the 2006-07 tax year.

He had announced a further increase to 300,000 for 2007-08.

The chancellor said that in the coming financial year, only about 37,000 estates would pay the tax.

BUDGET 2006
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Mr Brown argued that that represented about 6% of the total number of people who are likely to die during that time.

The above-inflation increases in the threshold were intended to make sure it was a fair and targeted system for raising tax, he said.

System criticised

The system of inheritance tax has come under increasing criticism in recent months, amid suggestions that rising house prices will mean many more people will have to pay the tax in the future if they inherit their parents homes.

The lack of any fundamental change to the inheritance tax system was criticised by the Association of Certified Chartered Accountants (ACCA).

"On inheritance tax, the small increase over four years from the current 275,000 threshold will actually pull thousands more people into paying inheritance tax, since house price inflation is running at a much higher level than the overall inflation rate, and this allowance will not keep pace," said Chas Roy-Chowdhury, the ACCA's head of tax.

The government's own estimates, published in the government Red Book, show that the increased thresholds will have little effect on its increasing income from this tax.

Expected government income from inheritance tax in the next two years will be unaltered by the new thresholds, and will in fact cut it by 10m in the year 2008-09.



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