Simplifying Inheritance Tax: The Latest!

The Chancellor Philip Hammond has written to the Office of Tax Simplification (OTS) asking it to carry out a review into inheritance tax, which he said is “particularly complex” at present.

In the letter, addressed to OTS chairman Angela Knight and tax director Paul Morton, Mr Hammond said he is interested to hear any proposals, “you may have for simplification, to ensure that the system is fit for purpose and makes the experience of those who interact with it as smooth as possible”.

The review, Mr Hammond said, “should include a focus on the technical and administrative issues within inheritance tax. Such as the process of submitting returns and paying any tax due, as well as practical issues around routine estate planning and disclosure.”

Additionally, he said the review could look at how current gift rules interact with the wider inheritance tax system, and whether the current framework causes any distortions to taxpayers’ decisions surrounding transfers, investments and other relevant transactions.

That is some remit!!!

What might be affected?

The Residential Nil Rate Band?

Top of the list should be the astonishingly complex residential nil rate band which discriminates against those who do not own their own home, those who do not have children, and those who not married. The current £325,000 allowance, which has been fixed since 2010, could then be raised for everyone. House prices have soared in recent years but the nil rate band of £325,000 has remained unchanged since 2009. Most taxpayers have no idea how the nil rate band works. An easier method to achieve the same goal would be to simply raise the standard nil rate band amount for a couple to £1m.

Don’t forget though, the advice may equally simply be to remove the residential nil rate band altogether. Why not?

The Annual Gifting Allowance?

Another area which needs to be reviewed is the annual gifting allowance, which has remained at £3,000 since 1981. If this had just increased with inflation it would now be worth £10,000. Increasing longevity means that men aged 65 will live to 87 so their children will often have to wait till their 50’s and 60’s before they receive the money which is not when they need help the most.

Or one could simply remove these small allowances altogether and replace the seven year clock with a ten year one! Simple! Less complex!! More tax!!!

The Brief
It is interesting that Mr Hammond also suggests the Office of Tax Simplification looks at whether the current inheritance tax framework distorts decision-making.
Many professionals concerned with tax can answer the question in a couple of sentences.
“Of course it does! Any tax framework distorts people’s behaviour and financial decisions, and inheritance tax is no exception.”
Most commentary over the coming months will tend to assume that the result of simplification is invariably lower tax. It is not. The Government is very short of spare cash and will be for the next several decades. The tax raises a significant chunk of revenue for the Exchequer, delivering around £4.9bn in the 2016-17 financial year. I would not be surprised at all to see important reliefs such as business property relief become much more restrictive in the future. Governments may well justify changes in terms of simplicity and efficiency for taxpayers but what they really need are these qualities in the assessment and collection of inheritance tax … and in an environment where the tax take is considerably higher than it is at present.

Want to read the letter? … it’s very short and you can find it at –