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Inheritance Tax Review
The Office of Tax Simplification (“OTS”) was asked in January 2018 to review Inheritance Tax. It has now published the first part of its report and the second part is expected in spring 2019.
To put Inheritance Tax into some context it may be helpful to know a few statistics:
1. There are, on average, approximately 570,000 people who die each year in the UK.
2. Each year there are approximately 25,000 estates that are liable to Inheritance Tax.
3. The amount of Inheritance Tax paid to the government each year equates to less than 1% of the annual tax collection.
The OTS has recommended that the following areas should be addressed by the government:
1. There should be a fully integrated digital system enabling applications for a Grant of Probate to be made online.
2. Given that the implementation of a new digital process is likely to take some time the OTS has recommended that HM Revenue & Customs should review the current forms to simplify them, particularly for non taxable estates.
3. The guidance issued by HMRC in relation to completion of the forms should also be simplified and shortened. The OTS recommends that flow charts or road maps should be prepared providing a step by step guide for Executors.
4. The current 12 week response time should be incorporated into legislation to ensure that HMRC, as it is currently at risk as it has no statutory basis.
5. HMRC and a Probate Registries should look at a streamlined process for payment of tax and issuing of grants.
Within the report it was also highlighted that there are number of difficulties faced by individuals when Inheritance Tax is payable. In particular there are a number of areas of complexity which should be reviewed by the government. These include:
1. The Residential Nil-Rate Band Allowance, which was introduced in 2017, which is considered to be overly complex and unfair.
2. Lifetime gifts, which given the number of potential exemptions and reliefs can be confusing.
3. Business Property Relief and Agricultural Property Relief should be considered, as should the exclusions from such relief.
4. The Gifts with Reservation of Benefit Rules and the often overlooked Pre-Owned Asset Tax, are not well understood by the public.
5. Testamentary charitable gifts and the reduced rate of Inheritance Tax of 36%, which applies when 10% of the chargeable estate is left to charity is seen as being cumbersome and confusing.
6. The Interaction between CapitalGains Tax and Income Tax during the course of dealing with the administration of estate, needs to be looked at.
It is pleasing to note that these areas have been identified by the OTS as being areas to be reviewed. I would certainly agree that some of the rules can appear to be unfair and are overly cumbersome. We all need to move with the times and to be able to deal with matters in a much more streamlined and cost efficient manner. Whether the government is prepared to undertake these challenges, to move towards a more efficient system and fairer process does, of course, remain to be seen.
If you have any questions on the above, please do not hesitate to contact Richard Horwood.
Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.