Following our recent article about the plans by the Office of Tax Simplification (OTS) to review Inheritance Tax and possible simplifications, their first report is now published – OTS Inheritance Tax Report.
Following their research the OTS report focuses on administrative issues around the current IHT process and system. Administering an estate is seen as a burden by many people and executors, and IHT forms a key part of this.
The report outlines its recommendations in easing the burden and making the administrative process easier in regards to IHT.
In the UK, on average, around 570,000 people die each year. Inheritance Tax forms were completed for 275,000 estates in the UK in the 2015 to 2016 tax year, over ten times the number of estates on which any Inheritance Tax was paid. This means that an Inheritance Tax form was submitted for around half of all the deaths in that year. The forms need to be submitted because the value of the estate must be reported to HMRC, even where there is no tax liability.
Concerns people have about Inheritance Tax
Evidence gathered by the OTS gathered showed a range a range of concerns and perceptions people have about Inheritance Tax:
- concerns about the administration of the tax
- concerns about areas of complexity within the rules
- wider perceptions about the tax generally
The administration and complexity of rules meant that 38% of respondents who did not use an adviser or professional spent more than 50 hours on dealing with estate administration, and understanding the forms and obtaining probate were the processes which took longest.
During the survey 65% stated that even if they had no inheritance tax to pay, they still had to provide a wealth of information.
The report states a series of key recommendations, summarised below:
The government should implement a fully integrated digital system for Inheritance Tax, ideally including the ability to complete and submit a probate application.
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 Inheritance Tax form.
HMRC should carry out a general review of its Inheritance Tax 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
- sufficient for complex estates to apply the law and practice correctly
In line with some other taxes, HMRC should also consider increasing the use of other educational channels such as webinars.
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.
HMRC should liaise with HM Courts and Tribunals Service on options for streamlining the payment and probate process.
HMRC should review the requirement for trustees to submit forms when no Inheritance Tax is due, and no reliefs or exemptions are claimed.
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.
HMRC should introduce a system issuing automated receipts for IHT100 forms and Inheritance Tax 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.
The implementation of recommendations will obviously take some time, and in the meantime clients will still have to navigate the IHT and probate administration processes.
BTWC are experts in dealing with Estate administration including IHT and probate, we understand the process discussed above can be onerous and time-consuming. If you have a client who needs advice and support just let us know and we can help you and them. Call 01522 500823 or email firstname.lastname@example.org.