Among measures announced by Chancellor of the Exchequer Alistair Darling in yesterday’s Pre-Budget Report (PBR) were changes to inheritance tax (IHT) and capital gains tax (CGT). The IHT allowance will now be transferable between spouses or civil partners going forward. This means that if one partner dies and their entire IHT allowance is not used, the remainder can be passed on to the surviving partner.

Julie Hutchison, estate planning specialist at Standard Life Assurance Ltd, said, ‘For once I find myself welcoming retrospective tax rules. Anyone whose spouse died before 9 October 2007 can benefit from the new transferable IHT rules, which could result in a significant IHT saving for the family on second death.

‘These new rules address the problem that the nil rate band of the first to die can often be wasted if assets are simply left to the surviving spouse (since spouse exemption applies). I also welcome the news that the Chancellor will consider house prices when making future increases in the nil rate band.’

CGT reforms announced yesterday will make the system more straightforward for taxpayers and more competitive on an international scale, according to Darling. Disposals on or after 6 April 2008 will be subject to a single CGT rate of 18 per cent, rather than the current system that charges ten per cent, 20 per cent or 40 per cent, depending on a person’s income tax band. The annual exemption amount of £9,200 will remain, but taper relief and indexation allowance will be withdrawn.

Simon Ward, economist at New Star Asset Management, commented, ‘The abolition of taper relief enjoyed by private equity firms and other holders of “business assets” more than offsets the cost of lowering the headline rate to 18%.

‘The capital gains tax changes represent a welcome simplification, although there is a risk that some private equity activity will now shift offshore.’

Peter Vipond, director of financial regulation and taxation at the ABI, concluded, ‘Today’s measures on IHT and CGT should allow more people in this country to save and benefit from their savings, building wealth to address the challenges of later life, and to support the next generation, from education to making a home.’

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