Martin Tolhurst

Inheritance Tax threshold frozen

Plans to increase the inheritance tax threshold to £350,000 next April have been halted by Alistair Darling’s pre-budget report, meaning anyone inheriting more than £325,000 will still have to pay inheritance tax.

By freezing the threshold at £325,000, those inheriting assets will still pay tax at a rate of 40 percent above the tax-free threshold. However, Mr Darling confirmed that he will still allow married couples to combine their allowances.

In 2007, Gordon Brown’s budget had promised to raise the threshold progressively to reflect a strong economy, and, by April 2010, a single person could leave an estate of £350,000 and a couple £700,000 before their beneficiaries faced a tax bill.

But Darling has justified the halt by claiming the country’s economic downturn has severely damaged house prices, meaning the change in threshold is no longer necessary, earning £440m for the government in the process.

"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."

Falling house prices mean that the number of estates whose value takes them over the £325,000 threshold is expected to drop by 25% during this tax year.

But the move has been challenged by opposition members, with Shadow Chancellor George Osborne accusing the government of abandoning its liberal roots and punishing those families who have saved up to provide for their kin.

“The message to aspiring families from these tax changes is pretty clear… If you want to leave something to your children; then the Labour Party is not for you anymore," said Mr Osborne.