UK: Office of Tax Simplification to review inheritance tax system

Thursday, 01 February 2018
Chancellor of the Exchequer Philip Hammond has asked the Treasury's Office of Tax Simplification (OTS) to carry out a review of inheritance tax (IHT).


Hammond's request was prompted by the OTS' own interest in the IHT regime, which Hammond acknowledged is 'particularly complex'.

The review will focus on the technical and administrative issues in IHT, such as submitting returns and paying the tax due. However, it will also examine matters of 'routine estate planning and disclosure'.

Hammond also wants the review to look at the interaction of gift tax rules with the IHT system, and whether the current rules distort taxpayers' decisions on transfers, investments and other transactions.

Details of the terms of reference have not yet been finalised, but a scoping document is due to be released within weeks.

The announcement was welcomed by the Chartered Institute of Taxation, whose Succession Taxes Sub-Committee Chairman, John Bunker, said a thorough review was 'long overdue'.

'The review must begin with an understanding that you cannot add simplicity, rather you must remove complexity, said Bunker. 'It may be beyond the scope of this review, but the creation of an additional residence nil rate band for an estate has undoubtedly added extra complication to the inheritance tax regime.'

Bunker also said there was 'definite potential for simplification' in the complex field of IHT exemptions. He suggested a larger annual exemption in place of all the others, such as marriage and small gifts.

'There is a good case for simplifying how trusts are taxed in relation to inheritance tax', he added. It remains to be seen, though, how the OTS's review will interact with the general review of trust taxation, which was announced by the Chancellor in the Autumn Budget.

Anthony Nixon, partner at Irwin Mitchell Private Wealth, suggested the OTS should look at reforming, and perhaps completely abolishing, the 'ridiculously complex' new IHT allowance linked to the value of a main home. He also recommended simplification of the IHT reliefs for businesses and, particularly, farmers, whose families usually have to claim both agricultural and business reliefs, rather than making a single claim.

'If IHT ever had a policy rationale, then it is no longer being fulfilled', commented James Badcock of Collyer Bristow. 'There are strong arguments for abolishing IHT altogether.' It is now, he said, mainly a tax on Middle England, discouraging people from organising their estates in a prudent way.

Representatives from STEP’s UK Technical and UK Practice committees have already met with the OTS to discuss the IHT review and will continue to engage on behalf of members.


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