Inheritance Tax Makeover

The Office of Tax Simplification has published the first of two reports outlining how and why the inheritance tax system needs to change.

Inheritance tax (IHT), or death tax as it was often termed, has been in existence for over two hundred years.  Since that time it has been constantly amended with layer upon layer of new rules added and has now become onerously complex and in dire need of reform.

The review was requested by the Chancellor in January this year and attracted an unprecedented response from advisers and the general public. Of the 570,000 people who die in the UK each year, up to half of families have to fill in the forms although IHT is payable on less than 5% of the deceased estates.

The OTS will publish two reports.  The first, published in October 2018, is on the day-to-day matters of concern to all who responded; the second report is due to appear in Spring 2019 and will explore key technical and design issues.

The report found that many of the respondents felt that at such a difficult time they were being asked to fill in complicated forms even when the relative who had died had only left a small amount. They also said it was confusing to work out which form to fill in and that the guidance provided can be difficult to navigate.

One of the key recommendations from the OTS is to “implement a fully integrated digital system for inheritance tax” that is similar to the tax self-assessment process. However, given the highly complex nature of IHT, its rules may have to be simplified first.

The OTS has proposed that in the meantime current forms should be made easier while a new “very short form” should be introduced for low-value or very simple estates.  It also recommends that HMRC creates a flow chart outlining the steps people need to take, and some working examples.

Another concern of most people is the delay in, and sometimes lack of, communication from HMRC to acknowledge receipt of their forms.  The OTS recommends HMRC issue receipts automatically for tax payments.



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REF: MC/NL/1.1