Following a request from the Chancellor the Office for Tax Simplification (OTS) has undertaken a review into the Inheritance Tax (IHT) regime and their first report has now been published.

Due to the wide scope of the review and unprecedented level of engagement from advisers and the general public, the OTS will publish two reports. This first report is on the day to day matters of concern to all who responded; the second will explore key technical and design issues and will be released in Spring 2019.

The OTS has gathered evidence about a range of concerns and perceptions people have about Inheritance Tax, which fall into three main categories:

  • Concerns about the administration of the tax
    • The key point being that IHT returns must be made even when there is no tax to pay. Returns are submitted in relation to about half of all UK deaths, when IHT is payable in respect of less than 5% of deaths.
  • Concerns about areas of complexity within the rules, especially:
  • Wider perceptions about the tax generally
    • IHT is perceived as the most unfair of all UK taxes as:
      • the rate of 40% is considered high (though the average effective rate after reliefs and exemptions is below 20%).
      • it is considered to be double taxation.
      • it is perceived that the wealthy avoid it.
      • those without spouses or children are eligible for fewer reliefs/exemptions than those with.

  Other responses gathered from the OTS survey (answered by 3,000 people) included:

  • 38% of respondents who did not use an adviser recalled spending 50 hours or more on estate administration.
  • 65% of respondents (who did not use an adviser) answered that despite there being no Inheritance Tax to pay they still had to provide significant amounts of information .
  • 11% of respondents who did not use an adviser stated that they found the process simple and user friendly.
  • 61% of respondents stated that they did not know how long it would take HMRC to respond once they had submitted their form.

Following the review the OTS has made various recommendations to simplify IHT:

  • The implementation of a fully integrated digital system, including the ability to complete and submit a probate application.
    • As this will be expensive and take time to implement in the short term HMRC guidance should be reviewed and improved to include worked examples, case studies, a step by step guide or ‘roadmap’ to highlight what an executor needs to do and when, and an online IHT calculator.
  • Changes to the current forms to reduce and simplify the administration of estates, including introducing a very short form for the simplest estates and updating the conditions that must be met to be able to complete a short Inheritance Tax form.
  • The introduction of a system issuing automated payment and return submission receipts
  • HMRC should liaise with HM Courts and Tribunals Service on options for streamlining the payment and probate process.
  • HMRC should review the requirement for trustees to submit forms when no IHT is due, and no reliefs or exemptions are claimed.
  • Until a digital system can be implemented, HMRC should make changes to simplify and tailor the existing form for lifetime charges and trusts and improve the available guidance for these forms.

The areas of complexity identified above will be looked at in more detail in the OTS’ second report as well as Gifts with reservation of benefit, trusts and gifts to charity.

Links to our guides:

Main residence nil rate band

IHT: Business property relief

IHT: Agricultural property relief

IHT: estate planning checklist 

Trusts  

IHT: charitable giving

External link:

Inheritance Tax Review – first report: Overview of the tax and dealing with administration

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