Do the inheritance tax changes really make a difference?

This week, Chancellor Alistair Darling lifted married couples' joint inheritance tax threshold from £300,000 to £600,000. We examine what this means for you.

From Tuesday of this week the joint inheritance tax threshold for married couples and people in civil partnerships doubled to £600,000, and will rise to £700,000 by 2010.

So how does this work? If a spouse dies and none of the inheritance tax allowance is already used up, that person's £300,000 allowance is automatically transferred to the surviving spouse.

If you are a widow or widower you will be able to take advantage of this as the benefit will be backdated indefinitely. The same applies to inheritors, who will benefit from the change even if the first spouse died years ago.

However, tax experts have been quick to point out that married couples were already able to combine their inheritance tax thresholds with some clever will writing. So in effect, the new benefit will mean little to many people.

Perhaps the most significant aspect of Tuesday's announcement was the indication that the joint threshold will rise to £700,000 by 2010.

The dramatic rise in house prices in Britain over the last 10 years means that many inheritances are far exceeding inheritance thresholds, leaving inheritors liable for significant tax bills.

And while the forthcoming rise to a £700,000 threshold is a move in the right direction, many feel that it is not enough.

An estimated two million homes in Britain are now worth over £300,000, and that figure is rising. While the Chancellor did say that house prices and inflation will be taken into account when deciding future inheritance tax thresholds, it seems that there will be no significant decrease in the number of people getting caught for inheritance tax.

This is especially true of people who are not married and non-civil partnership couples, who received no benefits from this week's inheritance tax changes.

In fact, much of the gloss was taken off the Chancellor's amendments to inheritance tax by the fact that the Tories had proposed raising the threshold to £1 million last week.

Shadow Chancellor George Osborne even accused Darling of stealing the Tories' ideas on tax in what he described as a “cynical stunt”.

While the changes to inheritance tax dominated the headlines, the scrapping of capital gains tax “taper relief” could be far more significant for the British consumer, who will pay a flat 18% CGT rate from now on.

This is bad news for business groups, who were paying as little as 10% capital gains tax on the sale of business assets.

However, those paying capital gains tax at higher rates, such as people who trade shares or those selling a second home, could save significantly.

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