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Chancellor calls for review of ‘complex’ inheritance tax

Chancellor Philip Hammond has asked the Office of Tax Simplification to review the inheritance tax regime.

In a letter dated 19 January, Hammond noted the system is “particularly complex” and wants to hear proposals the OFT has to simplify it.

Hammond added the review should focus on technical issues such as how returns are submitted when tax is due.

It could also examine how current gift rules interact with the wider inheritance tax framework and whether this causes any distortions in taxpayers’ decisions on transfers, investments and other relevant transactions.

Old Mutual Wealth tax expert Rachael Griffin says any simplification would be welcome.

She says: “The inheritance tax system is not straightforward and has a number of legacy clauses and exemptions that the Government could seek to reform. One of the best examples of over-complication in death taxes is the residence nil rate band which is incredibly complicated and causes a lot of confusion.”

The residence nil rate band came into force in April 2017 and allows people to pass on a family home to direct descendants free of inheritance tax going up to £175,000 by 2020-21.

But Old Mutual Wealth research says 70 percent of people have no idea how it works and suggests a better method would be to raise the standard nil rate band to £1m.

Hargreaves Lansdown personal finance analyst Sarah Coles adds: “Anyone who has ever wrestled with estate planning and inheritance tax can appreciate that the whole system can be a nightmare of complexity.

“The pension freedoms and the additional residence nil rate band may have reduced inheritance tax for many, but they have made things much more complicated rather than less, so it’s about time someone took a big red pen to the myriad of rules and regulations.”

According to the OFT a scoping document for the review will be agreed and published in due course.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. “Chancellor Philip Hammond has asked the Office of Tax Simplification to review the inheritance tax regime”.

    This Chancellor speak means ‘How can we find a way to increase it- very simply’.

  2. Well, I can’t wait to see if simplification will stretch to zapping the bonkers rules hitting trusts for life cover, which are much trickier than the residence nil rate band, whist having no discernible tax take benefit, but everyone has to think about “just in case”.

  3. Isn’t a vastly greater priority simplification of the mind-boggling complexity of the pensions system? Whilst they’re at it, they could also restore a few things that have (but never should have) been removed during the past 16 years, such as Contributions Insurance (WoP) and the inclusion of (at least an element of) Life Insurance in a PP.

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