The chancellor yesterday raised the inheritance tax (IHT) threshold beyond the expectations of many accountants, with the announcement of a 14.1 per cent rise over three years from April 2005. But those hoping for wholesale IHT reform in an election year were left disappointed. At the moment, estates with a value of £263,000 or more are liable for inheritance tax payable at 40 per cent on all assets over this figure. The threshold will rise by £12,000 to £275,000 in the 2005-06 tax year (a rise of 4.6 per cent). It will then climb to £285,000 in 2006-07 (up a further 3.6 per cent) and to £300,000 in 2007-08 (a further 5.2 per cent rise).

"The IHT threshold has gone up by more than we expected," said Tim Cripps at accountants Moore Stephens. "But this is nowhere near enough to equalise the effect of house price increases over the past few years." As part of its package of anti-avoidance measures, the government has made clear its determination to penalise people who avoid IHT. From next month new rules on "pre-owned assets" mean there will be income tax charges for those who have carried on living in their homes after they have deliberately moved the property out of their estates. But the Budget documents made no mention of the final preowned assets regulations or guidance notes. Advisers warned that time is running short for tax professionals who need to advise clients on the new rules. Chris Whitehouse, a specialist barrister and member of the Society of Trust and Estate Practitioners (Step), said the delay in regulations was "making life very difficult for people who have to take quite important decisions before April 6". Other tax changes were broadly as expected. Income tax thresholds will rise in line with inflation. The taxfree personal allowance for income tax will rise to £4,895 in 2005-06, an increase of £150. For pensioners aged 65- 74, the personal allowance will be £7,090 (up £260), rising to £7,220 for those who are 75 or over (up £270).