In the early hours of Friday morning (23 Nov), the Office of Tax Simplification (OTS) released its first report reviewing Inheritance Tax (IHT). Ben Taylor, solicitor at Roythornes Solicitors, shares his initial thoughts on the report and what it could mean for 2019.
Despite less than 5% of UK estates being subjected to inheritance tax, it is apparent from the report that many people are concerned about it and unsure whether it applies to them. In fact, the report notes that IHT is seen as the most unfair of 11 major taxes and the process described as complex, stressful and time-consuming.
Whilst there is clearly a perception that IHT applies more often than it actually does, the report shows that there is an increasing number of people subject to IHT. The OTS puts this down to increasing house prices and a freeze on the value of the Nil Rate Band (NRB).
An analysis of HMRC data shows that higher value estates appeared to suffer lower rates IHT, which is put down to increased application of reliefs. Relievable property such as shareholdings and farm properties appear to make up the vast majority of estates where the value exceeds £6 million but significant tax reliefs, such as the Agricultural Property Relief (APR) and Business Property Relief (BPR), are allowed affecting the rate of tax
Whilst these reliefs don’t help with the public perception that IHT favours the wealthy, it is worth bearing in mind that they were introduced to ensure that a business is affected as little as possible by the death of its owner. The business will therefore continue contributing to the economy and not be broken up by inheritance tax – which particularly applies to farming businesses.
Another key feature of the report related to digitalisation. One of the principal recommendations by the OTS is for the government to introduce a fully integrated digital IHT reporting system which is unsurprising given the recent focus on ‘making tax digital’. However, it is recognised that such a service would take time to implement so we could be expecting a revision of the IHT forms in the meantime.
The OTS also recommended that the process for tax payment be streamlined and consideration be given to extending the payment deadline. Again, this is not surprising as the current time limit of six months has been criticised by the public and professionals alike.
The first OTS report is incredibly detailed and offers a number of recommendations. Given that this is the first of three reports looking into issues affecting the IHT regime, I would be very surprised if we don’t see a considerable shake up of inheritance tax in 2019.