It has been revealed that the Chancellor Philip Hammond has written to the Office of Tax Simplification ("OTS") to review the UK’s Inheritance Tax ("IHT") regime.
“This is long overdue,” said Nimesh Shah, a partner at accountancy, tax and advisory practice Blick Rothenberg, “but the review should not be restricted to IHT. The whole personal tax system and the way that we pay it is a mess and is in urgent need of simplification.”
The IHT nil-rate band of £325,000 (the amount which can be passed tax free) has been frozen since 2009 and will remain at this level until 5 April 2021.
Shah said: “Instead of simply increasing the IHT nil-rate band, the Government introduced an additional nil-rate band, applying to the main residence, creating unnecessary complexity.”
The additional nil-rate band came into effect from 6 April 2017, set at £100,000 and will rise to £175,000 by the tax year 2020/21.
He explained: “With rising house prices over the last decade, more people are coming within the IHT net and it is vital that the system is looked at carefully and modified appropriately so that it is simplified and fit for purpose.
“People are confused about what their children and grandchildren will have to pay in IHT, and many have become concerned that their Wills do not even reflect the current rules, which could mean their estates end up paying more tax.
“In addition, numerous changes to the IHT treatment of trusts have resulted in difficulty for individuals and their accountants to calculate the right amount of tax. A number of the facets of the UK’s IHT system are hugely out-of-date, such as the annual exemption for gifts, which has remained at £3,000 since 1981.
Shah added: “The Chancellor’s request to the OTS is welcomed and presents a real opportunity to completely overhaul this archaic tax. However, as with a number of other past reviews by the OTS, the end results could be largely disappointing.
“As many continue to struggle with filing their tax return before tomorrow’s deadline, this is the strongest indicator that the OTS’ review needs to be widened beyond IHT. The Chancellor’s letter should signal a more comprehensive overhaul of the UK’s personal tax system. We need a simplified model of what is frankly a bulging legislative tax code. This would be for the benefit of individual taxpayers and HMRC.”
For more information please contact Nimesh Shah