HM Insights

Is the Inheritance Tax system due for a major overhaul to make things simpler?

The Office of Tax Simplification (OTS) has published its first review of the IHT system. The review focuses on the administrative issues of the current system rather than the tax itself.

The OTS launched a call in January 2018 for public comments and has had an overwhelming response. The feedback received was reported as "heavily critical" of the current system showing IHT to be one of the UK's most disliked taxes.

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Recommended reforms

A key finding was that the majority of people who had to go through the IHT system did not actually have an IHT bill. IHT returns are submitted in respect of roughly all UK deaths but tax is only payable in respect of less than 5% of deaths. The amount of information required on an IHT400 is incredibly high particularly when there is no tax to pay.

Physical settlement of the tax due also causes problems; the tax is payable within six months of the date of death and there are often no cash assets in an estate to settle the liability within such a short timescale.

The OTS has made the following recommendations:

  • the requirement to submit forms should be reduced for small estates where there is no tax to pay;
  • the administration and guidance notes should be simplified;
  • banks and other organisations should be made to apply standardised requirements to allow executors to access information or release funds; and
  • the IHT system should be digitalised.

A second report is due to be issued next spring.

Get in touch

If you require any advice on your own inheritance tax situation, please don't hesitate to get in touch with a member of our team.