The Office of Tax Simplification has called for Government reviews of IHT and capital gains tax as part of its tax relief review.
In its final report on tax simplification, published today, the OTS also suggests merging income tax and national insurance, a long term project it believes would deliver “major simplification”.
The review of tax reliefs began in November and focused on tax reliefs the OTS believed had scope for simplification.
The list included a review of income tax reliefs around insurance bonds, including the 5 per cent rule and top-slicing relief. Also included were potentially exempt transfers for inheritance tax planning and IHT taper relief.
Capital gains tax and income tax relief for venture capital trusts and capital gains tax relief for enterprise investment schemes were also included, along with film tax relief.
The review looked at 27 different IHT reliefs and has concluded that the reliefs are integral to the IHT regime. It has therefore called for a “top down” review of IHT, carried out by the Government or OTS.
The OTS says the capital gains tax system for individuals and companies has “drifted apart”. It suggests a realignment of the treatments and a simplification of the tax is needed as a “longer term project”.
The report recommends that venture capital trusts and enterprise investment schemes should be simplified with the conditions to be met for investors and the investee company rewritten in a simpler form to make it easier for taxpayers to determine eligibility.
It also says the Government should consider aligning the time limits and conditions of EIS and VCTs.
The report points to business suggestions that the EIS £2m annual limit be raised or removed as well as looking at whether the two year window for using funds should be extended and whether the 50 employee limit should be reviewed.
The review recommends that entrepreneurs’ relief be renamed, as entrepreneurs’ rate, and simplified. The OTS highlights that businesses have called for the 5 per cent rule to be abolished and for an increase, or possible removal, of the lifetime limit to encourage investment by serial entrepreneurs.
Out of the 155 reliefs the OTS looked at it recommended that 47 be abolished, including the contracted out rebate for occupational schemes and the exemption from CGT of compensation to those mis-sold personal pensions. It suggests 37 should be looked at in more detail, 54 should remain unchanged and 17 should be simplified.
The OTS was set up by Chancellor George Osborne to provide independent advice on simplifying the UK tax system. It can only make recommendations on potential tax rule changes as the final decision rests with the Treasury.