Page last updated at 14:07 GMT, Wednesday, 9 December 2009

Inheritance tax threshold frozen

Houses
House prices fell dramatically then showed some recovery, surveys say

Chancellor Alistair Darling drew an election battle line by announcing that he will freeze the inheritance tax threshold.

Inheritance tax is payable on amounts above £325,000 at present.

This threshold was planned to rise to £350,000 in April, outlined in Gordon Brown's last Budget in March 2007, but will now be frozen until 2011.

The Conservatives pledged to increase the threshold to estates of over £1m if they get into power.

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Inheritance tax is currently charged at 40% on all assets worth more than £325,000, although anything left to a spouse or civil partner is exempt, while married couples and civil partners can also transfer any of their unused allowance to their partner on their death.

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If the last person in a married couple or civil partnership dies, their joint allowance could be as much as £650,000.

Freezing the planned increase in the threshold means that the heirs of more households could face the tax if house prices rise sharply.

The value of homes plummeted during the start of the downturn but have now returned to a similar level to prices in early 2006, according to the latest survey from the Nationwide Building Society.

"I do not believe that raising this allowance can be a priority, given the impact of the downturn on the country's finances," Mr Darling told the Commons.

"This will still mean that fewer than 3% of estates will pay inheritance tax."

Patrick Mock, of accountancy firm Deloitte, said that the move represented a 7% drop on the value of estates which would be exempted.

"While the value of many people's estates has decreased by at least this over the last year, this will of course not be the case for everyone," he said.

This was reflected in the Treasury estimates for how much this measure would yield - £80m in 2010/11 and £170m in 2011/12 - as values picked up and the effect of the change filtered through to tax receipts, he said.

Jonathan Loynes, of Capital Economics, said: "There are micro-measures to support the housing and labour markets, paid for by modest tax increases including the widely expected tax on bankers' bonuses, a freeze on the inheritance tax threshold, and more national insurance increases.

"But they all cancel each other out in terms of revenue."



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