In his Pre-Budget Report (PBR), delivered to cabinet members this afternoon, Darling outlined plans to increase the IHT threshold to £600,000. It will then increase to £700,000 by 2010.
This increase will also be backdated indefinitely for every widow and widower. The Chancellor said that the main reason behind his decision was that he wanted to see spousal benefits factored into the inheritance tax laws.
He also said that the Tories' proposed £1 million IHT threshold was unworkable - especially as there were not enough non-domiciled individuals from which to reclaim the economic deficit this would create. Darling said it would effectively end up costing £2 billion to the taxpayer - money which he proposes to channel into health and education instead.
In addition, the Chancellor spoke of his support for long term fixed rate mortgages for a period of ten years or longer.
The Council of Mortgage Lenders (CML) supports the Chancellors decisions with director general Michael Coogan saying: "With the estates of married couples now exempt up to £600,000, rising to £700,000 by 2010, the effect is broadly the same as if the Chancellor had fully indexed the inheritance tax threshold for the effect of house price movements since Labour came to power, which would have resulted in an exemption threshold of £608,600.
"On fixed-rate mortgage funding, we look forward to seeing the proposals that the Chancellor said he will bring forward in the budget. There is a key trade-off for borrowers in choosing a longer-term fix, relating to the potential costs of exiting the deal early, and this is the key feature that needs to be addressed to stimulate mainstream consumer appetite."
With regard to the unrest felt in the UK mortgage markets, Darling said the fallout from this was "yet unclear" and that he plans to make a full statement on the turmoil surrounding Northern Rock later on this week.
He also announced plans to simplify capital gains tax by removing taper relief and plans to increase the level of housebuilding to 240,000 per annum by 2016.
The PBR hasn't gone down so well with everyone though. Paul Chafer, sales and marketing director at Stroud & Swindon Building Society believes it has done little in the way of encouraging the housing market or first time buyers: “We expected great things from a potential review of housing taxes, yet once again there has been a missed opportunity to support the UK property market by reconsidering the stamp duty thresholds. The current nil rate banding at £125,000 is outdated and should now be more in line with £175,000, as was expected to be announced today.
“First time buyers already have major difficulties in funding their first house purchase and with the majority of properties now in excess of £125,000, an additional charge only creates further complications for this particularly important section of the economy. The expected increase in the 3 per cent band from £250,000 to £350,000 was also overlooked, with little respite for those hoping to move up the property ladder – a state of play that could lead to stagnation of the market.
“By proposing to raise the inheritance tax threshold for couple, widows and widowers to £600,000 and then to £700,000 by 2010 is encouraging and a step in the right direction. However, this penalises those who are not in relationships and this section of the populations should not be overlooked. In summary, a good start with inheritance tax, but there is still much more to be done to relive the tax burden for UK homeowners.”
