RSM welcomes OTS review on inheritance tax simplification

Commenting on the first part of the Office of Tax Simplification's (OTS) review into inheritance tax, Gary Heynes, RSM's head of private client said:

'The OTS has highlighted the sheer absurdity of the levels of red tape involved in the administration of the inheritance tax system. This results in 275,000 estates having to fill in IHT forms when only 25,000 are liable to the tax.

'Clearly, there's an urgent need to reduce this burden on the relatives and executors of the deceased, and we welcome the proposals to implement a fully integrated digital system. This would simplify the process and hopefully remove the need for those estates that are not liable to IHT to seek professional advice. That said – and as we know from painful experience of the Making Tax Digital initiative – HMRC does not have the best record when it comes to implementing large scale IT projects, so the OTS is right to propose more immediate measures.

'Although we may have to wait for the OTS' second report for a deeper analysis of some of the wider questions around IHT and the specific reliefs and allowances, this report does nevertheless shine a light on some of the anomalies which need to be addressed. This is particularly true for those who co-habit or do not have children and who do not benefit from the same allowances accorded to those who are married or in a civil partnership and/or who have direct descendants. 

'The report also highlights the difference in effective tax rates paid by estates. This appears to show the rate taper down for higher value estates. This is most likely to be due to reliefs such as Business Property Relief (BPR) and Agricultural Property Relief (APR)) which give 100 per cent exemption for qualifying businesses and assets. 

'Those who are able to and who are well advised often give away excessive wealth which would be chargeable to IHT and retain business assets which are not taxable. These business assets can not only be passed on to the next generation IHT-free, the beneficiaries also benefit from a rebased market value for capital gains tax purposes, which reduces any capital gains tax on disposal. In essence, there is an incentive to hold high value business assets until death.'