Inheritance tax ‘too complex and needs to be simplified’

The Treasury has agreed to make changes to the administration of Inheritance Tax following complaints from the public that it is too complex, old fashioned and needs to be simplified.

Sarah Heal Private Client Executive provides an update.

The announcement comes after more than 3,500 people responded to a public consultation carried out by the Office of Tax Simplification (OTS) on behalf of the government.

Many of those who responded said they were being asked to fill in complicated forms even when the relative who had died had only left a small amount.

Although Inheritance Tax is payable on less than 5% of the estates of the 570,000 people who die in the UK each year, around half of the families have to fill in the forms. Many said their relative had worried about the tax during their lifetime, even though it was not going to affect them.

Some of the main issues highlighted in the OTS review were that completing forms is hard and it can be difficult to work out which form to use, the amount of information required can be disproportionate and the guidance provided can be difficult to navigate.

The OTS report, based on the review, recommended:

• reducing or removing the requirement to submit forms for smaller or simpler estates, especially where there is no tax to pay

• simplifying the administration and guidance

• banks and other financial institutions having standardised requirements

• automating the whole system by bringing it online.

Angela Knight, OTS Chairman, said: “Inheritance tax is both unpopular and complicated. The basic design of the tax itself is for government, but at the OTS we can address that most frequent of all comments, at least make it easier for the families to fill in the forms”.

“Improving the administration of this tax in these ways is important as having to deal with the current process can seem overwhelming to people at a time when they are both preoccupied and distressed.”

In response to the review, Jesse Norman, Financial Secretary to the Treasury, said the government will:

• change reporting regulations so that from 1 January 2022 over 90% of non-tax paying estates each year will no longer have to complete Inheritance Tax forms for deaths when probate or confirmation is required

• make permanent the ability for those dealing with a trust or estate to provide an Inheritance Tax return without requiring physical signatures from all others involved, easing the administration burden in cases where a return is still required.

Mr Norman said Treasury officials will continue to work on other recommendations including digitisation, improving processes for lifetime and trust charges, guidance, and working with court services.

He said: “Some of these are longer term in nature and will be taken forward as part of the wider Tax Administration strategy.”

We will continue to keep you informed of any further developments.

If you would like advice about Inheritance Tax planning or any aspect of Wills and probate please contact Sarah on 01228 514077.