GORDON BROWN decided against forcing millions of families to rewrite their wills yesterday as he sounded the retreat from the most controversial of his Budget measures unveiled in March.

The Treasury in effect abandoned plans to force parents to leave assets for their children to inherit on their 18th birthday or face a punitive new tax rate.

Another move that would have made it prohibitively expensive for husbands to leave their assets for their spouses in a trust rather than outright was also dropped. Lawyers said that it was a humiliating U-turn by the Treasury. Stephen Pallister, a member of the Law Society’s wills and trust committee, said: “Millions of people would have had to take expensive tax advice or rewrite their wills. This amounts to a massive climbdown.”

Ministers quietly abandoned the plans by tabling a series of amendments yesterday morning to the Finance Bill, which is in its committee stage in the Commons. There was no accompanying announcement from the Treasury or Revenue & Customs.

The effect would be to return the tax treatment of trusts for children or spouses to a position similar to that before the Budget, although children who opt to leave assets in a trust until the age of 25 would face a smaller additional charge of 4.2 per cent. Both types of trust had faced a swingeing new tax regime announced by the Chancellor without warning in the Budget, claiming that they would affect a relatively small number of very wealthy people and the move would tighten rules against tax avoidance.

Solicitors and accountants were horrified by the proposals because trusts are commonly recommended for families of modest means. This arises as in London and the South East a typical family house, the most common asset, is worth more than the inheritance tax threshold of £285,000.

Many parents planning to leave assets in a trust for their children prefer them to inherit at 25, rather than 18, which previously was allowed in trust law without incurring tax. Parents will now be able to defer their children’s inheritance to the age of 25 and be liable to a lesser charge of 4.2 per cent. Previously they faced a continuing tax charge of 6 per cent over ten years, in addition to inheritance tax, on such trusts for every year after the parents’ death if inheritance was deferred beyond 18.

Trusts set up for spouses are commonly used in second marriages to bequeath an income to a surviving spouse for life but, on their death, leave the remaining wealth to children from a first marriage. A spouse exemption in such circumstances has now been restored.

This is also used by Muslim families because they comply as Islamic wills by avoiding interest charges, which are prohibited under Sharia.

George Osborne, the Shadow Chancellor, welcomed the changes. “This was one attack too many on Middle Britain by Gordon Brown,” he said.

Explore Law

• Columnists

• Law Panel

• Law Reports

• Student Law

Times Recommends

• Linklaters trounces rivals as UK's biggest firm
• Clifford Chance profits plunge 37 per cent
• Casual drinkers hit by spread of 'dry' zones