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Inheritance tax process is too complex
Too many people have to fill in inheritance tax forms, and the process is complex and old fashioned.
In the first part of its simplification review of the tax, the Office of Tax Simplification (OTS) received more than 3,500 responses to its call for evidence, far more than in any previous review. Many respondents said they felt they were being asked to complete complicated forms even when the relative who had died had left only a small amount.
Although inheritance tax is payable on less than 5% of the estates of the 570,000 people who die in the UK each year, about half of the families have to fill in the forms.
The report highlights the benefits of:
- reducing or removing the requirement to submit forms for smaller or simpler estates, especially if there is no tax to pay;
- simplifying the administration and guidance;
- the advantages of banks and other financial institutions having standardised requirements; and
- automating the system by bringing it online.
Paul Morton, OTS tax director, said: ‘It has been hugely positive to have had the benefit of so many personal insights into the experience of dealing with inheritance tax alongside deep engagement with many professional advisers. This has been key to informing the overview of the tax that the report provides and will underpin the OTS’s continuing work on its second report.
‘The key recommendation in this report on the administration of the tax, as with other work of the OTS, is that technology should be deployed to provide a digital solution to transform the experience of those dealing with the tax on a day-to-day basis.’
The OTS is undertaking this two-part review of inheritance tax in response to the request from the chancellor of the exchequer in January 2018. This first report examines the administrative issues that people complain about and which were raised in the responses. The second report covering wider areas of concern will follow in the spring.
Gary Heynes, RSM’s head of private client, welcomed the proposals to implement a fully integrated digital system, because it would ‘simplify the process and remove the need for those estates that are not liable to inheritance tax to seek professional advice’.
He said: ‘The report shines a light on some of the anomalies that need to be addressed. This is particularly true for those who co-habit or do not have children and who do not benefit from the same allowances accorded to those who are married or in a civil partnership and/or who have direct descendants.
‘The report also highlights the difference in effective tax rates paid by estates. This appears to show the rate taper down for higher value estates. It is most likely to be due to reliefs such as business and agricultural property reliefs which give 100% exemption for qualifying businesses and assets.’
On solving complexity in the system, Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: ‘The report recognises that any long-term solution will be digital and mobile – which could make an enormous difference to executors buried in paperwork and impenetrable manuals. Unfortunately, a fully digital solution isn’t going to see the light of day in a hurry. The system itself may be too complex to digitise at the moment, so the rules may have to be simplified first.’
