Weekly tax brief

Inheritance tax: Should the process be reviewed before any changes are introduced?

08 March 2023

It has been speculated that changes to the inheritance tax (IHT) system are not top of the priority list for the forthcoming Spring Budget. However, even if no substantial changes are introduced, the chancellor would be well advised to consider first the current administration of this particular tax. Given that many people’s first interaction with IHT may be at a time of bereavement, the current system does not make this easy for them. 

As an example, although HMRC intends to write to executors to confirm receipt of IHT forms and subsequently confirm the period in which they will raise any questions, HMRC is not bound by a deadline within which to respond to IHT form submissions, which may leave families wondering whether their forms have been reviewed, accepted, or even received. Additionally, HMRC can potentially amend an assessment to an IHT liability within four years of the payment of IHT following a death, in any circumstances, if they subsequently disagree with the content of the IHT forms. This is potentially problematic for executors, as it will reduce certainty around distributing the remaining assets of the estate when HMRC could in theory approach them years later for further IHT. In our experience, there have been substantial delays with the relevant HMRC department in dealing with matters, particularly since the start of the coronavirus pandemic.

The HMRC guidance on IHT can also be confusing. For example, in one place HMRC says you need to wait 20 days after submission of the IHT forms before applying for probate, however, another form refers to 15 days.

Furthermore, the IHT forms themselves have not kept pace with the changes to IHT over the years. For example, while UK residential property enveloped within non-UK entities has been within the scope of UK IHT since April 2017, the relevant IHT forms have not been amended to take account of these changes, which can lead to further queries and uncertainty. 

Some believe that future changes to IHT are inevitable, and although they may not be in next week’s Spring Budget, changes could be announced soon. We believe that HMRC need to remain focused on the current backlogs and consider appropriate administrative tweaks carefully before implementing any changes.