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Tony Wickenden: IHT planning faces a critical moment

Tony WickendenAdvisers are placing more importance on this tax, just as the OTS readies recommendations for its simplification

I was fortunate enough to be asked to speak at an event run by Cicero Group earlier this month. Cicero was presenting some interesting adviser research on inheritance tax, and my job was to talk about it in the context of intergenerational financial planning.

The adviser research uncovered some encouraging observations:

  • Seventy six per cent of advisers said IHT planning was critical to their advice proposition;
  • Fifty one per cent believed it would become even more important in the coming year;
  • Advisers have carried out IHT planning with 34 per cent of their clients this year, up from 18 per cent of clients in 2017;
  • Advisers have discussed but not yet executed IHT planning with 49 per cent of their clients;
  • Greater adviser expertise and proactivity were the two areas identified as having the most capacity to make an impact on the level of interest and activity in IHT planning;
  • Ninety five per cent of advisers value IHT planning education.

Attendees at the event were also treated to some excellent insight into the current and potential future work of the Office of Tax Simplification by tax director Paul Morton.

We were informed it had more than 3,000 responses to its call for evidence into its IHT review, which closed in June.

Morton explained the OTS was independent – in that it can make the recommendations it believes will lead to improvement, but it cannot make any policy recommendations in relation to the structure of tax.

As such, we should not expect the outcome of the IHT review to comment on a change to a receipts basis of taxation, as suggested by the Resolution Foundation, or the removal of, or any structural change to, business property relief or agricultural property relief. Sighs of relief from the assembled audience. The OTS has split its review into two parts: administrative and technical.

It will be publishing its administrative findings and recommendations around the same time as the Budget on 29 October.

It needs more time to consider all the possible technical changes though, and expects to be in a position to publish these in 2019.

Morton told us a consistent theme of responses received was that the tax was unfair and that the most effective simplification would be to abolish it.

However, he categorically denied this recommendation would be made. Outside scope, apparently – despite the fact Sweden has actually abolished its estate tax.

Key numbers

76%
Proportion of advisers who say IHT planning is critical to their proposition

51%
Advisers who believe IHT planning will become more important in the coming year

34%
Proportion of advisers’ client banks that have undertaken IHT planning this year, up from 18% in 2017

95%
Advisers who say they value IHT planning education

Source: Cicero Research

That said, the OTS is concerned by evidence of arbitrariness within IHT. One example quoted was the fact the unlimited exemption for transfers between spouses and civil partners was not enjoyed by two sisters who had been living together for many years. But, again, this may be outside scope.

It has also noted much discontent over the complexity of the transferable nil rate band and the residence nil rate band, as well as confusion over how life assurance and pensions are treated.

There will no doubt be some recommendations made in relation to the forms that need to be completed.

Given the delay in publishing the findings on technical change, the door is still open for individuals and businesses to submit views on improvements to the way in which IHT operates.

Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn

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