The Chancellor has announced that the Inheritance Tax threshold is to remain frozen at £325,000 for the next tax year.

The Labour party had intended to raise the threshold at which Inheritance Tax (IHT) becomes payable from £325,000 to £350,000 in April 2010.  Alistair Darling announced last week that this policy had to be abandoned because of the state of the public finances.  

Inheritance tax is payable when a person dies if he or she has an estate of over £325,000.  Any assets in excess of this ‘nil rate band’ are taxed at 40% although anything left by a spouse or civil partner to the other is exempt from IHT.  When a surviving spouse or civil partner dies, the executors can claim not only the nil rate band available to that surviving spouse but also any unused allowance of the first spouse to die.  Their joint allowance could be as much as £650,000.

Mr Darling said, “I do not believe that raising this allowance can be a priority, given the impact of the downturn on the country's finances . . . This will still mean that fewer than 3% of estates will pay Inheritance Tax.”

The Conservative party pledged to increase the IHT threshold to £1m if they win the election but this measure is also likely to be delayed because of the economic climate.

If you have any queries regarding Inheritance Tax planning, please contact our Wills, Probate and Trusts department on 01639 645061.