ICAS ICAS logo

Quicklinks

  1. About Us

    Find out about who we are and what we do here at ICAS.

  2. Find a CA

    Search our directory of individual CAs and Member organisations by name, location and professional criteria.

  3. CA Magazine

    View the latest issues of the dedicated magazine for ICAS Chartered Accountants.

  4. Contact Us

    Get in touch with ICAS by phone, email or post, with dedicated contacts for Members, Students and firms.

Login
  • Annual renewal
  • About us
  • Contact us
  • Find a CA
  1. About us
    1. Governance
  2. Members
    1. Become a member
    2. Newly qualified
    3. Manage my membership
    4. Benefits of membership
    5. Careers support
    6. Mentoring
    7. CA Wellbeing
    8. More for Members
    9. Area networks
    10. International communities
    11. Get involved
    12. Top Young CAs
    13. Career breaks
    14. ICAS podcast
    15. Newly admitted members 2022
    16. Newly admitted members 2023
  3. CA Students
    1. Student information
    2. Student resources
    3. Learning requirements
    4. Learning updates
    5. Learning blog
    6. Totum Pro | Student discount card
    7. CA Student wellbeing
  4. Become a CA
    1. How to become a CA
    2. Routes to becoming a CA
    3. CA Stories
    4. Find a training agreement
    5. Why become a CA
    6. Qualification information
    7. University exemptions
  5. Employers
    1. Become an Authorised Training Office
    2. Resources for Authorised Training Offices
    3. Professional entry
    4. Apprenticeships
  6. Find a CA
  7. ICAS events
    1. CA Summit
  8. CA magazine
  9. Insight
    1. Finance + Trust
    2. Finance + Technology
    3. Finance + EDI
    4. Finance + Mental Fitness
    5. Finance + Leadership
    6. Finance + Sustainability
  10. Professional resources
    1. Anti-money laundering
    2. Audit and assurance
    3. Brexit
    4. Business and governance
    5. Charities
    6. Coronavirus
    7. Corporate and financial reporting
    8. Cyber security
    9. Ethics
    10. Insolvency
    11. ICAS Research
    12. Pensions
    13. Practice
    14. Public sector
    15. Sustainability
    16. Tax
  11. CPD - professional development
    1. CPD courses and qualifications
    2. CPD news and updates
    3. CPD support and advice
  12. Regulation
    1. Complaints and sanctions
    2. Regulatory authorisations
    3. Guidance and help sheets
    4. Regulatory monitoring
  13. CA jobs
    1. CA jobs partner: Rutherford Cross
    2. Resources for your job search
    3. Advertise with CA jobs
    4. Hays | A Trusted ICAS CA Jobs Partner
    5. Azets | What's your ambition?
  14. Work at ICAS
    1. Business centres
    2. Meet our team
    3. Benefits
    4. Vacancies
    5. Imagine your career at ICAS
  15. Contact us
    1. Technical and regulation queries
    2. ICAS logo request

IHT: Worrying taxpayers to death

  • LinkedIn (opens new window)
  • Twitter (opens new window)
Donald-Drysdale By Donald Drysdale for ICAS

12 December 2018

Main Points

  • The Office of Tax Simplification (OTS) has published the first of two reports on its review of inheritance tax (IHT).

  • Many taxpayers whose estates will never be liable to IHT worry endlessly about how the tax might affect them.

  • The OTS has recommended improvements to IHT administration and will focus on technical and design issues in its follow-up report.

Browsing the latest OTS report on inheritance tax, Donald Drysdale welcomes suggestions for simplifying the administration of this complex and controversial tax which raises such paltry revenues. The views expressed are his own and not necessarily those of ICAS.

Background

The Office of Tax Simplification (OTS) is conducting a review of administrative and technical aspects of inheritance tax (IHT). Its consultation has attracted unprecedented interest, with some 3,600 responses and an extensive range of meetings with interested parties.

An initial report published on 23 November explains the issues and complexities of IHT, identifying concerns raised and making recommendations on administrative issues. A second report exploring key technical and design aspects will follow early in 2019.

Perceptions of IHT

Each year around 570,000 individuals die in the UK, and IHT is paid by fewer than 25,000 of their estates – that’s less than 5% of all deaths. In spite of this, IHT forms have to be completed for around half of all deaths – over ten times the number of estates that are liable.

There are widespread concerns about IHT. Many people assume wrongly that a much greater proportion (say 20%) of estates are liable to the tax. Others perceive rightly that wealthy taxpayers can circumvent IHT by careful planning using reliefs, lifetime giving and trusts.

Many taxpayers whose estates won’t attract IHT worry endlessly about how the tax may affect them. They incur high professional fees seeking ways to reduced their exposure to IHT – sometimes identifying necessary steps required but often simply confirming that no avoiding action is needed.

Although the headline rate of IHT is 40%, the average effective rate is generally below 20%. In spite of its high profile, IHT produces relatively modest receipts. In 2017/18 the tax raised only £5.2 billion, which was less than 1% of the Government’s total tax revenues. By comparison, in the same year, insurance premium tax (IPT) raised £5.9 billion, even though half the population have reportedly never heard of it.

IHT forms

Incredibly, there are some 70 different IHT forms which can be downloaded here on GOV.uk.

The main forms are the long form (the ‘Full Inheritance Tax account’ or IHT400) and the short form (the ‘Return of estate information’ or IHT205). The OTS notes that one of an executor’s most onerous tasks is to decide whether IHT forms need to be completed and, if so, which forms to complete. The forms are described by a majority of users as very difficult to complete.

HMRC had originally planned to put all IHT forms online, but then decided to focus on digitising only the short form. This is now available for completion online by executors or administrators in England and Wales but not by professional advisers.

The short form and probate processes in Scotland and Northern Ireland differ from those in England and Wales. Scotland has its own legal system and obtaining confirmation is a paper-based probate process. No forms are available to complete online in Scotland and Northern Ireland.

Administrative concerns

The OTS found that many people worry about IHT, often when they are at their most vulnerable – e.g. after losing a spouse, partner or other relative or friend. It wants to see IHT made simpler and easier to understand for those who worry about the tax generally, are not within its scope, or are concerned about having to administer an estate.

The key OTS recommendation is that the Government should implement a fully-integrated digital system for IHT, ideally including the ability to complete and submit a probate application. In the meantime, HMRC should simplify the current forms, update the conditions that allow use of the existing short form, and introduce an even shorter form for the simplest estates.

HMRC guidance on IHT has attracted particular criticism. The OTS wants to see the material: targeted to reduce concerns for those who worry unnecessarily; clear, consistent and easy to navigate; linked with related guidance, including probate; expanded to include worked examples, a road map, timescales and an IHT calculator; and sufficient for complex estates to apply the law and practice correctly.

HMRC don’t issue receipts for IHT payments, but the OTS thinks they should introduce an automated system for doing so. It also suggests that HMRC should liaise with HM Courts and Tribunals Service on options for streamlining the payment and probate process.

Time limits are strict. Following the month of death, IHT must be paid within 6 months and IHT forms must be submitted within 12 months. The OTS questions whether the 6-month deadline is too tight, and also suggests that HMRC might further refine the recently-introduced 12-week response period during which they will raise any enquiries into the information contained on the form.

IHT and trusts

The OTS calls on HMRC to review the requirement for trustees to submit forms when no IHT is due, and when no reliefs or exemptions are claimed.

Until a digital system is implemented, the OTS wants HMRC to change the existing form IHT100 for lifetime charges and trusts. It advocates: splitting the form into a simple, tailored form for each occasion; improving the guidance for completing the form and calculating the tax; and reviewing the requirement that it must be signed by all trustees.

The OTS recommends that HMRC should introduce an automated system for issuing receipts for IHT100 forms and related IHT payments. It also wants them to consider introducing a response period during which they will raise any enquiries into the information contained on the form IHT100.

Technical and design issues

One chapter of this initial report is devoted to key areas of complexity within the IHT rules. Further details on these and related OTS recommendations are to be included in the second report, which I shall review on publication.

The nil rate band (NRB) is generally well understood and considered fair. By contrast, the residence nil rate band (RNRB) has been criticised for its complexity, and also for its unfairness to those who have no children or do not own their own home, while the downsizing rules are considered particularly complicated.

The rules on lifetime gifts raise concerns, not only because they advantage wealthy taxpayers, but also because they are complex and confusing. Exemption limits have not kept pace with inflation, and record-keeping requirements can present difficulties.

Evidence gathered by the OTS suggests that agricultural property relief (APR) and business property relief (BPR) are broadly working in a straightforward way, but there are some areas of confusion – including issues relating to furnished holiday lettings, joint ventures and limited liability partnerships.

In its follow-up report, the OTS will also consider other options for simplification. These will include: the reduced rate of IHT when a certain proportion of an estate is left to charity; the IHT treatment of life insurance products and pensions and the type of products available; technical aspects relating to trusts; and arrangements where a donor retains a benefit from assets gifted.

Article supplied by Taxing Words Ltd

How would you mend inheritance tax?

By Donald Drysdale for ICAS

18 May 2018

2022-11-mitigo 2022-11-mitigo
ICAS logo

Footer links

  • Contact us
  • Terms and conditions
  • Modern slavery statement
  • Privacy notice
  • CA magazine

Connect with ICAS

  • Facebook (opens new window) Facebook Icon
  • Twitter (opens new window) Twitter Icon
  • LinkedIn (opens new window) LinkedIn Icon
  • Instagram (opens new window) Instagram Icon

ICAS is a member of the following bodies

  • Consultative Committee of Accountancy Bodies (opens new window) Consultative Committee of Accountancy Bodies logo
  • Chartered Accountants Worldwide (opens new window) Chartered Accountants Worldwide logo
  • Global Accounting Alliance (opens new window) Global Accounting Alliance
  • International Federation of Accountants (opens new window) IFAC
  • Access Accountancy (opens new window) Access Acountancy

Charities

  • ICAS Foundation (opens new window) ICAS Foundation
  • SCABA (opens new window) scaba

Accreditations

  • ISO 9001 - RGB (opens new window)
© ICAS 2022

The mark and designation “CA” is a registered trade mark of The Institute of Chartered Accountants of Scotland (ICAS), and is available for use in the UK and EU only to members of ICAS. If you are not a member of ICAS, you should not use the “CA” mark and designation in the UK or EU in relation to accountancy, tax or insolvency services. The mark and designation “Chartered Accountant” is a registered trade mark of ICAS, the Institute of Chartered Accountants of England and Wales and Chartered Accountants Ireland. If you are not a member of one of these organisations, you should not use the “Chartered Accountant” mark and designation in the UK or EU in relation to these services. Further restrictions on the use of these marks also apply where you are a member.

ICAS logo

Our cookie policy

ICAS.com uses cookies which are essential for our website to work. We would also like to use analytical cookies to help us improve our website and your user experience. Any data collected is anonymised. Please have a look at the further information in our cookie policy and confirm if you are happy for us to use analytical cookies: