Simplifying Inheritance Tax - Office of Tax Simplification publishes its report

Last week the Office of Tax Simplification released its report into how to simplify the inheritance tax (IHT) system. The main recommendations to come out of the report are for the implementation of a fully integrated digital system for IHT and for changes to be made to the current forms to reduce and simplify the administration of estates. This included a recommendation to introduce very short forms for the simplest estates and updating the conditions that must be met to be able to complete a short IHT form, so as to bring more estates within this short form procedure.

There were some interesting statistics to come out of the report. For example, whilst IHT forms were completed for 275,000 estates in the UK in the 2015 to 2016 tax year, each year fewer than 25,000 estates in the UK actually pay IHT. This means in more than 90% of cases often lengthy IHT forms are completed even when no IHT is due. It was also noted that 38% of respondents who did not use an adviser recalled spending 50 hours or more on estate administration. Completing the IHT forms can be one of the most time consuming element of dealing with an estate administration, so the proposal that this form filling process should be removed or simplified for a large number of estates is welcome one.

The report also noted other areas of complexity, including the Residence Nil Rate Band and the various gift rules and exemptions. Dealing with estates which involve these areas of taxation can be complicated and the associated IHT calculations are far from straightforward. However, the report lacks any recommendations about how to simplify these areas of complexity, perhaps due to the legislative changes that would be required at time when Parliament's focus is elsewhere.