British Chancellor of the Exchequer Phillip Hammond has ordered tax experts to carry out a review of how inheritance tax rules are working.
In a letter to the Office of Tax Simplification, it’s clear the watchdogs have raised issues about IHT in recent weeks.
Hammond agrees rules surrounding how the tax is applied are complicated.
“Inheritance tax is particularly complex,” wrote Green “I would like to request that the OTS carry out a review into the inheritance tax regime.
“I would be most interested to hear any proposals you have for simplification, to ensure that the system is fit for purpose and makes the experience of those who interact with it as smooth as possible.”
Tax take up £1.7 billion
He goes into instruct the OTS that the review should focus on technical issues. As well as how the tax is administered.
“This should include the process of submitting returns, paying any tax due as well as practical issues about estate planning and disclosure,” said Green.
The Chancellor also hints that the review will cover gifts and if the current IHT rules distort how taxpayers arrange their finances to cater for inheritance tax.
The IHT review comes as HM Revenue & Customs highlighted that revenues form the tax have soared by £500 million this year and are expected to rake in £1.2 billion more by April despite new zero-rate bandings excluding the value of family homes up to £325,000.
In total, HMRC received £5.3 billion from estates in 2017.
Calls for simpler system
“A simpler system that people can easily understand is desperately needed. Even the most recent change, the Residence Nil Rate Band, introduced last April to help people pass on more of the value of their family home to their children and grandchildren, is riddled with ifs and buts. Since it was brought in, we’ve seen a surge in the amount of IHT being paid,” said Sean McCann, chartered financial planner at NFU Mutual.
“It’s clear from the most recent HMRC receipts that the taxman is already turning up the heat with inheritance tax by looking more closely at people’s estates and challenging claims for reliefs.
“If the taxman is taking more in inheritance tax, it’s usually because house prices have gone up, raising the value of many people’s estates. But as property prices haven’t been shooting up at the same rate, it’s difficult to see what could have caused such a sharp increase other than a more aggressive approach to inheritance tax.”
“The extra scrutiny from tax officials means those who haven’t taken professional advice or planned early could be caught out. This could have a catastrophic effect on family wealth.