Too many people have to fill in Inheritance Tax forms, and the process is complex and old fashioned, according to the Office of Tax Simplication (OTS) in its review of the tax.
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 that their relative had worried about inheritance tax during their lifetime, even though it was not going to affect them.
Some of the main issues highlighted to 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, especially in cases where no tax is due;
- the guidance provided can be difficult to navigate;
- people would like HMRC to provide receipts for tax payments.
The Office Tax Simplification is undertaking a two-part review of IHT as requested by the Chancellor of the Exchequer in January 2018.
In this first review the OTS says it would be helpful to:
- reduce or remove the requirement to submit forms for smaller or simpler estates, especially where there is no tax to pay;
- simplify the administration and guidance;
- have banks and other financial institutions operating standardised requirements;
- automate the whole system by bringing it on-line.
Angela Knight CBE, Chairman of the OTS (pictured above) 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’. The OTS has worked on ways to address these practical complexities, which have come through loud and clear.
“The recommendations in this report will make it easier for the majority, and would mean that in future, many may not have to do the forms at all. 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.”
Sarah Coles, personal finance analyst, Hargreaves Lansdown said: “This report shines a spotlight on the impact of forcing people through a fiendishly complicated process at a really horrible time in their lives. It’s an area crying out for radical simplification, and the Office of Tax Simplification has some useful recommendations. Simplification is the key to understanding and engagement, so anything that simplifies the process is welcome.
“It recognises that any long-term solution will be digital and mobile – which could make an enormous difference to executors buried in paperwork and impenetrable manuals. Unfortunately, a fully digital solution isn’t going to see the light of day in a hurry. The system itself may be too complex to digitise at the moment, so the rules may have to be simplified first.
“Streamlining the process is incredibly useful, but simplifying the rules as well would be transformative. The OTS doesn’t rule this out – it has promised to address all kinds of things – ranging from gifts to trusts and the residence nil rate band. Unfortunately, it’s not in a hurry, so before we even see the recommendations on any of this, we’re going to have to wait for a second report. This will come as no comfort to anyone currently mired in the process. You’re likely to hit your deadline for submitting your forms well before we see any material change.”