Office of Tax Simplification review of inheritance tax

Further to our news item that the Office of Tax Simplification (OTS) has been asked to review inheritance tax (IHT) the terms of reference have now been published.

The scope of the review is as follows:

“The review will consider how key aspects of the current IHT system work and whether and how they might be simplified. This will include a combination of administrative and technical questions such as:

- The process around submitting IHT returns and paying any tax, including cases where it is clear from the outset that there will be no tax to pay;

- The various gifts rules including the annual threshold for gifts, small gifts and normal expenditure out of income as well as their interaction with each other and the wider IHT framework;

- Other administrative and practical issues around routine estate planning, compliance and disclosure, including relevant aspects of probate procedure, in particular in relation to situations which commonly arise;

- Complexities arising from the reliefs and their interaction with the wider tax framework;

- The scale and impact of any distortions to taxpayers’ decisions, investments, asset prices or the timing of transactions because of the IHT rules, relevant aspects of the taxation of trusts, or interactions with other taxes such as capital gains tax; and

- The perception of the complexity of the IHT rules amongst taxpayers, practitioners and industry bodies.” 

It is to be hoped that the proposals include genuine simplification proposals unlike the previous attempts to simplify IHT. To professionals who work within the field IHT is not complex, it is quite logical and while we welcome an overarching review it is hoped that change will not be proposed for the sake of change. The complexities associated with IHT are the later 'bolt on' changes such as pre-owned asset tax and residence nil rate band.

One of the major issues with IHT is the process; there are considerable delays at HMRC once forms such as IHT400 and IHT100 are submitted and any simplification of the reporting process that may speed up that process will be welcome.

The OTS will publish their report in Autumn 2018; in time for any proposals to be included in the Budget?