The UK’s Office of Tax Simplification has published the first report of its Inheritance Tax review with plans for a simpler online system set to save hundreds of thousands families in the UK from unnecessary form filling.
The report, the first in a series of recommendations coming from the OTS points to changes would prevent 250,000 families from form filling and help people spend less time dealing with IHT issues, when the vast majority do not have a liability. The report also highlighted that almost 90% of people spent 10 hours or more dealing with unnecessary forms with 13% of people spending more than 100 hours dealing with inheritance tax issues.
Laura Suter, personal finance analyst at investment platform AJ Bell, welcomed the move to stop the “unnecessary form filling and stress” that a large proportion of families have to undergo when a loved one dies.
“It is ridiculous that ten times the number of people fill out the form associated with inheritance tax than actually pay it,” she said. “A simple online system would mean that up to 250,000 people each year could avoid the stressful process and instead find out instantly online whether they need to complete the longer form filling. This is clearly needed.
“The OTS recognises that it may take time for a digital system to be introduced and in the meantime has urged HMRC to make it easier for families to go through the inheritance tax process, providing more help and guidance and an online tax calculator.”
Pensions IHT removal
While welcoming the proposals Suter pointed to more immediate concerns relating to pensions being caught up in IHT bureaucracy and disparity between wealthy families and those with smaller estates being given lower rates of taxation
“This report is the product of 10 months of work by the Office of Tax Simplification into how to fix inheritance tax, she added. “The second report from the group is likely to get more into the reliefs and changes to the current gifting rules. In the final report we would hope to see pensions removed from inheritance tax entirely, rather than relying on arcane HMRC rules that currently force most providers to exercise discretion over how pension death benefits are paid out.”
10% reduction for wealthy
“The report highlights that the wealthiest families are paying less tax than the middle class, with estates worth £10m or more paying an effective 10% tax rate, compared to a 20% tax for those with smaller estates of £2m to £3m. This is undoubtedly down to the fact that the wealthiest families get professional advice to set up trusts and make full use of the allowances, while those with smaller estates do not.”