Tax Administration Day, which was announced to complement the March 2021 Budget, raised a raft of speculation around potential consultations and changes to, amongst others, capital gains tax (CGT) and inheritance tax (IHT).
In reality, the 16 page document (including covers) focussed on administrative changes to improve the administration of the tax system, building of a modern tax system and tax avoidance.
As part of the administrative changes, the government cut IHT form-filling for estates that fall below the main threshold for the tax, as recommended by the OTS in 2019. Over 90% of non-taxpaying estates each year will no longer have to complete IHT forms for deaths when probate or confirmation is required.
In addition, the current temporary provision for those dealing with a trust or estate to provide an inheritance tax return without requiring physical signatures from all those involved will be made permanent.
Reporting regulations will also be updated to clarify the requirement for estates to submit an inheritance tax account where the deceased was never domiciled in the UK but owned indirect interests in UK residential property.
The paper also confirmed that Making Tax Digital (MTD) – introduced in April 2019 for VAT for businesses with a taxable turnover above the VAT threshold and included for smaller VAT companies in the Finance Bill 2021 – would be put forward for legislation later this year to extend it to Income Tax Self Assessment from April 2023.
Commenting on the document, Rachael Griffin, tax and financial planning expert at Quilter: “This is a step forward towards greater simplicity, but leaves the system largely unchanged, and we are still a long-way from seeing any fundamental changes to the IHT system as recommended by the OTS and the APPG on Inheritance & Intergenerational Fairness.”
Peter Hamilton, Zurich’s head of market engagement said: “Reform of the IHT system is overdue – increasing numbers are falling into the threshold and the current process brings complexity and stress for more and more families at a hugely difficult time for them. Anything that can simplify the system to help customers after losing a loved one, particularly those with smaller estates, would be welcomed.
“As insurers, this is something we’ve collectively taken steps to do, including instant payments on life insurance claims to help customers with funeral arrangements and clearing any outstanding liabilities, and reducing some of the difficulties associated with the need for attested death certificates.”
Tom Selby, senior analyst at AJ Bell, added that the document was “a missed opportunity to tackle some fairly obvious flaws in the system” – including reviewing ‘net pay’ pension schemes, overtaxation of pension freedoms withdrawals and simplifying the ISA landscape.
Selby added: “Higher-earning retirement savers – particularly those in public sector defined benefit schemes – will be relieved rumoured reforms to pension tax relief have not materialised, although given the parlous state of the UK’s finances it would be no surprise to see this back on the table in the not-too-distant future.
“Similarly, landlords, property investors and those with assets held outside tax-efficient wrappers like pensions and ISAs will also be breathing a sigh of relief that capital gains tax (CGT) will stay intact for another tax year at least.
“The Office of Tax Simplification (OTS) previously backed aligning CGT and income tax rates, which many expected would pave the way for an immediate overhaul. Like pension tax relief, while this has been shelved for now it could resurface further down the line so investors should make the most of their pension and ISA allowances to shelter as much of their long terms savings from the tax man as possible.”
