The Treasury recently announced a number of changes to tax policy including the simplification of Inheritance Tax ("IHT") reporting requirements for deceased estates.
The news comes following an ongoing review by the Office of Tax Simplification ("OTS") into IHT and acknowledges that around 50% of estates are currently required to complete an IHT account of some form, even though less than 5% of estates have an IHT liability.
The Government is accordingly set to reduce the level of paperwork required for those dealing with IHT when someone dies, with the IHT reporting requirements being reduced. From 1 January 2022, 90% of those estates that have no IHT to pay will be removed from the need to report to HMRC when applying for Confirmation - or in England, Probate.
What else is changing?
Last year, due to the challenges faced during lockdown, HMRC introduced a temporary practice whereby IHT returns for trusts and estates could be submitted without requiring physical signatures from all Executors/Trustees – provided that electronic signatures were added together with an appropriate declaration confirming their ackowledgement of the return and agreement to be bound by its terms. This was a different practice from that previously, whereby all Executors and Trustees had to sign returns before their submission to HMRC, which could lead to delays and potential issues in meeting reporting deadlines. However as part of their announcement the Treasury has also confirmed that this will now become a permanent practice.
As another seemingly temporary practice, HMRC also stopped accepting payment of IHT by cheque last year, but it is not yet clear if this will similarly become a permanent practice.
The changes are thought to be only the start of those anticipated as a result of the ongoing review being carried out by the OTS. Indeed the announcement also acknowledged the wish of the OTS for a fully integrated digital system for IHT and noted that the Government would keep under review other ways of reducing and simplifying the administration of estates. The current guidance available regarding IHT is also being reviewed with the aim of this being made clearer and easier to navigate.
However whilst the OTS last year proposed a wider reform of IHT (and capital gains tax) this has not yet been confirmed. Moreover in response to the feedback on the Government's taxation of trusts consultation, the Government has said that it does not see any need for comprehensive reform of the current system, albeit that they will keep the issues raised under review.
In any event, the changes announced so far will no doubt be good news for the future administration of estates, reducing the paperwork to be completed and thus expenses to be incurred by many estates. Removing the need to report to HMRC should also reduce delays encountered by many estates. However it remains to be seen what other changes might follow – and if they will be as welcome…
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Harper Macleod's Private Client team are experts in administering estates and trusts and in dealing with all aspects of inheritance tax. Get in touch with us today to find out how we can help.
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