IHT: A Case For Change?
Inheritance tax is a highly unpopular tax in the UK for many reasons. No more than 5% of deceased estates are liable to IHT each year, yet formal IHT forms must be completed for around half of these. We look at the key issues and recommendations set out in the first report published by the UK Office of Tax Simplification (OTS) in its two-part review of the IHT system.
What’s the issue?
The OTS opened a consultation early 2018 on IHT following a request by the Chancellor, with a call for evidence from the general public and from professional advisors. More than 3,500 contributed to the review - an unprecedented level of engagement, according to the OTS.
The consultation is wide-ranging and is looking at whether the current system is fit for purpose. This is the first of two reports, and considers the practical complexities faced by people who need to engage in the IHT tax system.
What does the Report say?
The overall picture is, says the OTS, of an administrative burden. In this first Report, Overview of the tax and dealing with administration, the OTS focuses on the administrative issues faced by individuals - concluding that there is a huge opportunity to improve the experience of thousands dealing with IHT each year. The existing system is complex and old-fashioned and requires grieving relatives to complete complicated forms - even where only a small amount had been left.
So what did respondents to the review say? The most frequent of all comments, says the OTS, is “at least make it easier for the families to fill in the forms completing forms is hard, and it can be difficult to work out which form to use”. Other criticisms include that even where there is no IHT to pay they still had to provide significant amounts of information; HMRC guidance provided can be difficult to navigate and no receipts for payments are given.
In its Report, the OTS makes various recommendations with (unsurprisingly) technology a central feature of these. The recommendations include:
• Reducing or removing the requirement to submit forms for smaller or simpler estates, especially where there is no tax to pay.
• Government should implement a fully integrated digital system for IHT (ideally including the ability to complete and submit a probate application). Pending this, HMRC should change the current forms to reduce and simplify the administration of estates, including a very short form for the simplest estates; and updating the conditions to be met to be able to complete a short IHT form.
• HMRC should review its IHT guidance to ensure it is clear, consistent and user friendly; and it should also consider increasing the use of other educational channels such as webinars.
• HMRC should introduce automated payment receipts on probate and trust matters, and liaise with HM Courts and Tribunals Service on options for streamlining the payment and probate process.
• HMRC should also review the requirement for trustees in some instances to submit IHT returns, even when no IHT is due and no reliefs or exemptions are claimed.
Whether government will take on board the concerns and recommendations of the OTS has yet to be seen, but it is clear that there is a need for changes to simplify the IHT process.
The second report covering key technical and design issues is due this Spring.
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you