Is it time for Inheritance Tax to be simplified?

Our Private Client team believes the current regime is overly complex which in some cases can lead individuals to buy unsuitable products to mitigate their tax bill, sometimes getting them in to trouble with the tax man. The team also believes it makes the UK a less attractive place for international workers and investors.

Deanna Hurst, a Partner in the Private Client team says:

“The rules and processes of inheritance tax and its interaction with other tax codes is very complicated. As we’ve seen all too often, the best efforts of ‘simplifying’ often have the very opposite effect and can be disadvantageous to people who want to plan for the future and structure their estates cost-effectively. We believe the only real solution is for the government to scrap the current regime and start again – but as this is unlikely, we wanted to put forward our views and recommendations based on our experiences of helping clients to find solutions to many of the issues."

We provided detailed recommendations in relation to the following points:

• The IHT forms are long, complicated and in some cases are filled out by clients not needing to pay tax which wastes their time and causes them an unnecessary expense.
• Long delays and persistent chasing of unprocessed forms is the norm. This backlog consistently delays our clients’ applications for Grant of Probate.
• A clearer procedure is needed for executors of estates who are liable to pay tax up front but where funds are not readily available. Executors are increasingly finding themselves out of pocket.
• Exemption to spouses and civil partners is helpful to partners passing assets to each other but doesn’t reflect modern family structures in the UK where more couples are living together as long term cohabitees.
• The residence nil rate band was introduced to help families pass more of their estate to their descendants free of tax but in practice it is an extremely complicated and technically challenging addition to the tax rules; similarly with the reduction in tax for leaving a charitable legacy and to the rules relating to trusts.
• Life time gift reliefs have not been increased for some time and need to be brought into line with retail indices.

The consultation was launched by the independent Office of Tax Simplification (OTS) which was looking to gather evidence and information about people’s experiences of the rules and processes of the current inheritance tax regime. The OTS expects to publish its report in the Autumn of 2018.