Chancellor Darling yesterday announced that the levels at which inheritance tax would apply have been changed as follows;
Before yesterday’s announcement, inheritance tax was charged at 40% on assets worth more than £300,000 that someone leaves behind when they die, unless it was left to a spouse.
When the spouse dies the same £300,000 rate applies. Mr. Darling has simply made the individual inheritance tax threshold transferable - allowing couples to combine their allowances and so escape tax on the first £600,000 of an estate. The measure will be backdated “indefinitely” - and it will increase to £700,000 by 2010. This means that a widowed spouse can use the unused allowance of that spouse in addition to their own.
Many couples have already arranged their affairs within their wills and trusts to effectively be in the same position already so has he actually given us anything?
The opposition parties are also wondering why he chose to take that action this week when the opposition parties suggested a more far reaching tax saving last week (increasing the individual allowance to one million pounds). Was the timing a co-incidence or does he realize that it’s an unfair tax, usually taxing money already taxed once previously and public opinion told him he must do something; so he’s juggled the figures and ended up with the same numbers that sensible people have arranged already. It looks like a PR job, only.
However; it was a nice touch to backdate the tax break and this might help a few people.
Darling has also said that house prices and inflation would at last be taken into account when adjusting the figures in the future.
It’s a mistake not to include unmarried couples in this deal (a very modern way that couples live together), but he did give the allowances to same sex civil partnership couples. Those unmarried couples should consider marriage to benefit from this tax allowance!
40,000 estates are presently subject to IHT and it brought in about £3.5bn to government reserves in 2006/7; that’s more than 50% higher than the figure from five years ago, much less than is raised through other taxes such as stamp duty on residential properties (£6.5bn in 2006/7).
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