Chancellor calls for IHT review to simplify system
January 31st, 2018
Chancellor Philip Hammond has written to the Office of Tax Simplification (OTS) to request a review of inheritance tax (IHT) with a view to simplifying the current regime.
In a letter, dated 19 January, Hammond said: “I am writing to acknowledge the OTS’s recent interest in the IHT regime. IHT, and the system within which it operates, is particularly complex, and I would like to request that the OTS carry out a review of the IHT regime.
“I would be most interested to hear any proposals you may have for simplification, to ensure that the system is fit for purpose and makes the experience of those who interact with it as smooth as possible.”
Hammond said the review should include a focus on the technical and administrative issues within IHT, such as the process of submitting returns and paying any tax due, as well as practical issues around routine estate planning and disclosure.
Considering how current gift rules interact with the wider IHT system, and whether the current framework caused distortions to taxpayers’ decisions surrounding transfers, investments and other relevant transactions, was another area Hammond asked to be included in the review.
“I look forward to agreeing the detail of the terms of reference in the coming weeks,” he added.
Irwin Mitchell Private Wealth partner Anthony Nixon said Hammond’s interest in simplifying IHT was “well overdue”.
“‘Improving the customer journey’ is a major priority at HM Revenue & Customs (HMRC), and so as a result changes are afoot,” he said.
Nixon said he hoped the OTS review would include:
- “Reform – perhaps complete abolition – of the ridiculously complex new IHT allowance linked to the value of one’s home, known as the Residence Nil Rate Band (RNRB). Put plainly, it discriminates against those who do not own their own home, those who do not have children, and those who are not married. The current £325,000 allowance, which has been fixed since 2010, could then be raised for everyone.”
- “A fresh look at the IHT rules for trusts, where the opportunity for reform was missed by HMRC in a recent review. It should be easier for those worried about their own improvidence to be able to create a trust for their own benefit, without tax penalties.”
- “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.”
“It is imperative that with change, the people who will be affected by these changes are considered at every turn. Simplification mustn’t come at the expense of fairness and justice to the families and beneficiaries who should receive inheritances,” added Nixon.
‘Ripe For Reform’
Old Mutual Wealth (OMW) tax expert Rachael Griffin agreed IHT was “ripe for reform”.
“With the weight of the Chancellor behind it, the OTS has a golden opportunity to simplify this complex area of taxation,” she said.
Griffin also said the RNRB was an example of the system’s complexity, referring to OMW research that found less than three-quarters (70%) of people had no idea how it worked.
“The overall policy direction has shifted in recent years towards allowing people to pass on more of their wealth on death, however, many people would like to help their families while they are still alive,” she added.
Source: Professional Adviser