PBR 09: Frozen IHT threshold is backward step

On the face of it, the decision in the pre-Budget report to freeze the threshold for inheritance tax looks innocuous. However, there are those who saw it as the chancellor refusing to help many as he had initially promised.

Alistair Darling announced on Wednesday that the inheritance tax threshold for individuals will be held at £325,000 for 2010-11, rather than raising it to £350,000 as had previously been announced.

The measure will yield around £80m in revenues for 2010-11, £170m in 2011-12 and £190m in 2012-13. This is expected to yield a total of £440m over three years.

The IHT threshold for married couples is also staying the same at £650,000.

Louise Somerset, tax director at RBC Wealth Management, said: "Even with falling house prices, the taxation of the family home on death remains a concern for many, and it is a pity that yet another year has passed without this issue being addressed. Freezing the IHT nil rate bandÉ will bring more estates into the tax net."

David Kilshaw, tax partner at KPMG, commented that this was a 'backwards step' and said: "It puts more properties into the IHT banding."

However Patricia Mock, private client director at Deloitte, said that "in the light of the fact that other personal allowances have been frozen, [the IHT threshold freeze] is not unexpected".

She noted that the policy meant a drop in the value of threshold by 7%. " Estates have dropped in value by that much over the last year," she said.

"What will be interesting is if, in a couple of years' time, [the IHT threshold] will be increased.

"But for now, holding it is a short-term measure, so I'm not surprised by the chancellor's decision."