First OTS report from IHT review proposes several ways to simplify tax process
26 November 2018
The process of inheritance tax should be overhauled to make it clearer, more consistent and easier to navigate, a new report by The Office of Tax Simplification has found.
In the 82-page document commissioned by Chancellor Phillip Hammond, OTS has made a number of key recommendations, including introducing a fully integrated digital system for inheritance tax. The new system would ideally include the ability to complete and submit a probate application, the OTS said.
In addition, administrative forms should be reduced and simplified, including introducing a very short form for the simplest estates.
Laura Suter, personal financial analyst at AJ Bell, said a simple online system would save 250,000 people each year from having to go through the stressful process and enable them to find out instantly online whether they need to complete the longer form filling. Nearly three quarters (70%) of people currently spend 10 hours or more on administering the estate and over 12% spend more than 100 hours doing so.
The OTS has also called for HM Revenue & Customs to carry out a general review on inheritance tax guidance, linking to other relevant guidance and providing worked examples, a road map, timescales and a tax calculator.
It has recommended that HMRC should review the requirement for trustees to submit forms when no inheritance tax is due and no reliefs or exemptions are claimed.
Neil Jones, market development manager at Canada Life, said: “A clear concern is the work around trusts. We welcome the recommendation that HMRC should review the requirement for trustees to submit forms when no Inheritance Tax is due, and no reliefs or exemptions are claimed. However, any digital reporting needs to be carefully considered to avoid what could be considered to be a pseudo trust register, which chips away at the confidentiality of tax returns.”
Rachael Griffin, tax and financial planning expert at Quilter, commented: “Encouragingly, the OTS have made what may seem like obvious recommendations, for instance, suggesting HMRC reviews the bizarre requirement where trustees need to submit IHT forms when no IHT is due. However, the meat of the policy changes will come in the second report where we still hope to see some simplicity on the reliefs offered and more flexibility for gifting during the lifetime.
“The OTS has an opportunity to find a smoother route for the public, removing unnecessary u-turns, stop signs and speed bumps. Because at the moment the current system is basically the same as asking learner drivers to navigate traffic in central London while reciting all the previous cars their parents ever owned.”
The report also highlighted that the wealthiest families are paying less tax than the middle class, with estates worth £10 million or more paying an effective 10% rate, compared to a 20% tax for those with estates of £2 million to £3 million.
Laura Suter, personal finance analyst at AJ Bell, said: This is undoubtedly down to the fact that the wealthiest families get professional advice to set up trusts and make full use of the allowances, while those with smaller estates do not.”
Griffin added: “It appears we’ve entered an upside down tax regime where the wealthy aren’t paying their fair share. There are number of things that are likely to be at play here. First and foremost is the uber wealthy have the flexibility within their assets as they are likely to have more liquidity which allows them to benefit from more reliefs and the power to get advice to help them ensure they are being as effective as possible.”
She continued: “Those with lower to middling wealth are likely to retain their liquid wealth to fund their lifestyle through their retirement, particularly as a substantial part of it will be locked behind the doors of their family home.”
Jones added: “The Government needs to take a more holistic view of the overall regulations and consider a deeper, root and branch, review to look at some of the areas of inheritance tax. The tax system has evolved piecemeal rather than as a single thought-through design and today the report has unveiled some similarly piecemeal changes.”
Summary of key recommendations from OTS report:
1 The government should implement a fully integrated digital system for Inheritance Tax, ideally including the ability to complete and submit a probate application.
2 Pending implementation of a digital system, HMRC should make 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.
3 HMRC should carry out a general review of its Inheritance Tax guidance with the aim of it being:
• targeted to reduce concern for those who worry unnecessarily
• clear, consistent and easy to navigate
• linked or located with other relevant guidance, including probate
• expanded to include worked examples, a road map, timescales and a tax calculator
• sufficient for complex estates to apply the law and practice correctly
In line with some other taxes, HMRC should also consider increasing the use of other education channels such as webinars.
4 HMRC should introduce a system issuing automated payment receipts and, if necessary, further refine the recently introduced 12 week response period, during which any enquiries into the information contained on the form will be made.
5 HMRC should liaise with HM Courts and Tribunals Service on options for streamlining the payment and probate process.
6 HMRC should review the requirement for trustees to submit forms when no Inheritance Tax is due, and no reliefs or exemptions are claimed.
7 Until a digital system can be implemented, HMRC should make changes to the existing form for lifetime charges and trusts. These include: splitting up the current form so there is a simple and tailored form for each occasion; improving the guidance available for completing the form and calculating the tax; and aligning the signature requirements for trustees with other parts of the tax system.
8 HMRC should introduce a system issuing automated receipts for IHT100 forms and Inheritance Tax payments made alongside the form, and consider introducing a review period during which an enquiry into the information contained on the IHT100 form will be initiated.
Origo is to launch Unipass Letter of Authority (ULoA) at the end of November, a service aimed at simplifying...
Professional Paraplanner’s publisher, Research in Finance (RiF), is a leading research company in the financial services sector. On occasion our readers...
While the aggregated costs and legacy trail commission regime remains far from perfect, some clarity can be gleaned, says...