Simplifying Inheritance Tax – What a good idea!
The most obvious simplification would be to remove the stupendously complicated residential nil rate band and instead increase the basic IHT allowance (frozen at £325,000 since 2009) to £500,000. But that did not figure in the two-part review of inheritance tax being carried out by the Office of Tax Simplification. The first part of their report, issued in late November, concentrated on reducing or removing the requirements to submit forms for smaller or simpler estates, especially where there is no tax to pay, and simplifying the administration and guidance. They also mentioned the advantages of banks and other financial institutions having standardised requirements and, of course, they were on the online bandwagon saying that the whole system should be automated by bringing it online.
The consultation process discovered that executors found the process extremely complicated and could spend many hours trying to get to grips with the system. The second part of the report, which will be published next year, will cover areas of complexity within the IHT rules including businesses and farms, gifts, and the various reliefs and exemptions. There are plenty of opportunities here for the Office of Tax Simplification to live up to its name! But I fear that disappointment will be the most likely outcome. We shall see.