In the first government “Tax Day” yesterday, more than 30 different publications were issued by the Treasury in relation to the government’s tax policy. It had been expected that these would include reforms to simplify the inheritance tax (“IHT“) regime which has been identified by the Office for Tax Simplification (“OTS“) and by an All-Party Parliamentary Group (“APPG“) as complex and in need of reform. However, the Treasury rather chose to focus on simplifying the administrative aspects of IHT.
In the update published on “Tax Day”, Jesse Norman, financial secretary to the Treasury, said the government was “cutting IHT red tape for more than 200,000 estates every year, dramatically reducing the amount of paperwork many families fill out.” This means that, from 1 January 2002, more than 90% of non-taxpaying estates each year will no longer have to complete IHT forms when probate is required. Currently, many estates have to submit an IHT return in order to obtain a grant of probate, even if no IHT is payable.
There were no announced reforms of the current IHT allowances and reliefs, thresholds and rates, some of which were set in the 1980s. The OTS had proposed reforms to IHT in its reports published in November 2018 and July 2019. The report of the APPG on Inheritance Tax and Intergenerational Fairness, issued in January 2020, favoured radical reform of IHT and abolition of many of the current reliefs. This included replacing the current IHT regime (which has a 40% rate combined with a range of reliefs and exemptions) with an estate tax regime which would tax all lifetime and death transfers of wealth, at a low flat rate, likely between 10% and 20%.
While “Tax Day” has not ushered in significant reforms and recommendations – rather a “tidying up” of the IHT legislation and administration – commentators have expressed hope that a proper overhaul of IHT may yet be on the cards.
Jenny Cutts, head of the Private Client Team and Partner at Wedlake Bell, comments:
“Despite the hype, and the deficit, the government’s tax day failed to address areas previously flagged for reform. For IHT, reform is long overdue with a draconian tax rate of 40 per cent, and a complex and outdated system of reliefs and exemptions.”
She points to the APPG recommendation to simplify IHT with a reduction or reliefs and exemptions combined with a lower, flat “life-time” rate of 10 per cent as a “missed opportunity“.
She adds: “The most tax day offered was a cut in paperwork for non- taxable estates with a value of up to £1m. Although this step is welcome, an opportunity has been missed to introduce more meaningful reforms.”
This is a summary of an article first published in FTAdviser.