Is the UK inheritance tax system due for an overhaul?
Written by Paul Dodd on November 26, 2018.
An independent review, commissioned by the Chancellor, Philip Hammond, in January 2018, has just been published by the Office of Tax Simplification (OTS) in the UK. Yes, such a thing really does exist! It found the UK’s inheritance tax system to be ‘complex and old fashioned’ and calls for it to be overhauled. 3,500 people were interviewed in the review process which concluded that the system is confusing, overcomplicated and unnecessarily bureaucratic, causing a huge amount of stress to grieving families at a time when they are particularly vulnerable.
While fewer than 30,000 people a year are liable for inheritance tax (IHT), the obligation to report the value of an estate to the tax office, even if no IHT is due, means that around 250,000 are obliged to complete up to 20 different inheritance tax forms. This is a huge and unnecessary burden which could be eliminated with a more straightforward and streamlined online system such as the one used for road tax renewals. The OTS is pushing for this.
Another criticism levelled at the system was the fact that while the deadline for submitting IHT forms is one year after a death, any tax due on an estate is payable within six months. It is hard to disagree with the member of public who called that ‘nonsensical’! The OTS called for the government to extend the payment deadline.
According to current rules, IHT is payable on estates worth over £325,000, or £450,000 if the main home is left to a child. Above that amount, aside from spousal transfers which are usually IHT free (this may be different if a spouse is not British), tax is levied. As house prices have risen, more and more families are being caught in the IHT net although less than 5% of the 570,000 people who die in the UK each year leave estates over the threshold.
Watch this space as a follow-up report is due in Spring 2019 which will deal with the design of the inheritance tax system including tax reliefs. If parliament heeds the OTS’s recommendations, there could be some major changes to come.
In the meantime, whether you will be liable for IHT in the UK or elsewhere when you pass away there are some steps that you can take to simplify things for your loved ones. Take a look at our 10 point estate planning checklist here.
And if you own assets which take you over the IHT threshold, there are estate planning tools at your disposal to minimise the amount that will need to be paid to the taxman. If you haven’t already done so, it is well worth taking some professional advice on this, particularly as expats often have additional complications to take into account such as residency and domicile issues, a foreign spouse and assets in different jurisdictions.
Why not get in touch with our will writing and estate planning team for some guidance? Drop me a line at email@example.com, I’d be happy to review your situation.