As an early Christmas present, the exceedingly generous (and almost hyperactive – in 2018 at least) Office of Tax Simplification published the first report of its two-part inheritance tax review.
Entitled ‘Overview of the tax and dealing with administration’, it explains its initial findings and recommendations. The second report, dealing with the more technical issues, will be published later this year.
The report’s foreword gives a clear indication of its focus:
“This first report summarises the many comments and submissions we’ve received. It then sets out recommendations on administrative issues, which featured frequently in those responses, and will remain important regardless of any technical or design changes made in the future.
“Although less than 5 per cent of people pay IHT, executors have to fill in IHT forms for half of all deaths. So, the key administrative recommendation is for the government to simplify this by giving renewed consideration to digitising and simplifying the necessary administration.”
According to the OTS, of the more than 570,000 people who die in the UK each year, IHT forms were completed in respect of 275,000 estates in the 2015/16 tax year. Of those estates, only 25,000 are liable for IHT.
With just 10 per cent of estates administrators must complete IHT returns for resulting in any liability, it is unsurprising the OTS thinks the situation could be improved.
Its key recommendations in relation to improving administrative efficiency are as follows:
1. The government should implement a fully integrated digital system for IHT, ideally including the ability to complete and submit a probate application.
2. Pending implementation of a digital system, HMRC should make changes to the current forms to reduce and simplify the administration of estates, including introducing a very short form for the simplest estates and updating the conditions that must be met to be able to complete a short IHT form.
3. HMRC should carry out a general review of its IHT guidance with the aim of it being:
- Targeted to reduce concern for those who worry unnecessarily
- Clear, consistent and easy to navigate
- Linked or located with other relevant guidance, including probate
- Expanded to include worked examples, a road map, timescales and a tax calculator
In line with some other taxes, HMRC should also consider increasing the use of other education channels such as webinars.
4. HMRC should introduce a system issuing automated payment receipts and, if necessary, further refine the recently introduced 12-week response period, during which any enquiries into the information contained on the form will be made.
5. HMRC should liaise with HM Courts and Tribunals Service on options for streamlining the payment and probate process.
6. HMRC should review the requirement for trustees to submit forms when no IHT is due, and no reliefs or exemptions are claimed.
7. Until a digital system can be implemented, HMRC should make changes to the existing form for lifetime charges and trusts. These include: splitting up the current form so there is a simple and tailored form for each occasion; improving the guidance available for completing the form and calculating the tax; and aligning the signature requirements for trustees with other parts of the tax system.
8. HMRC should introduce a system using automated receipts for IHT100 forms and IHT payments made alongside the form, and consider introducing a review period during which an enquiry into the information contained on the IHT100 form will be initiated.
These are areas unlikely to result in the direct involvement of financial advisers but if there is IHT change in the offing (as it seems there will be) it is important those involved in estate planning are at least aware of the changes and their potential impact.
Advisers should continue to be involved in the process of wealth transfer. Creating a good connection with the inheriting generation is essential to developing long-term relationships and influence over funds under management. The more informed and connected you are, the more you are likely to be valued and relied on by your clients.
Tony Wickenden is joint managing director of Technical Connection (a St James’s Place Wealth Management group company). You can find him Tweeting @tecconn