The Chancellor Alistair Darling has effectively doubled the inheritance tax threshold by making it transferable between spouses and civil partners.

It means the threshold for married couples is now £600,000 and will rise to £700,000 by 2010.

The measure, which was announced in the Chancellor’s pre-budget report, is seen by most political commentators as the Government’s response to Conservative proposals to reform inheritance tax so only millionaires would have to pay it.

Until Mr Darling’s announcement, inheritance tax was levied at 40% on the value of the estate over and above the threshold of £300,000. Widows and widowers were exempt from the tax but it then become payable on their death. Because the allowance is now transferable it doubles the threshold meaning that inheritance tax will not be paid on the first £600,000 of their estate.

Mr Darling said this means that 97% of estates will now be exempt from inheritance tax and there will be nothing at all to pay on assets transferred to a surviving spouse, even if the estate exceeds £600,000.

The changes are backdated indefinitely allowing widows, widowers and bereaved civil partners to use their deceased partner’s allowance when passing on their estate to their children and families.

The measures are welcome but are not as generous as they appear at first sight. For example, it has long been possible for couples to effectively double their tax threshold by the use of trusts.

There is also the danger that inflation and rising house prices will soon reduce the value of the increased threshold, and although married couples will benefit there is no change in the situation for single people and those who cohabit.

It is still advisable for single people and couples alike to plan ahead and examine how the use of trusts and other measures can safeguard their family’s wealth for the next generation.

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