Too many people have to fill in Inheritance Tax forms, and the process is complex and old fashioned says the OTS in the first part of its simplification review of the tax, requested by the Chancellor.
More than 3,500 people shared their views about Inheritance Tax with the OTS, far more than in any previous review. Many of those who responded told the OTS that, at what is such a difficult time, they felt they were being asked to fill in complicated forms even where the relative who had died had only left a small amount.
Although Inheritance Tax is payable on less than 5% of the estates of the 570,000 people who die in the UK each year, around half of the families have to fill in the forms. Many also told us that their relative had worried about inheritance tax during their lifetime, even though it was not going to affect them.
The Office Tax Simplification is undertaking this two-part review of IHT in response to the request from the Chancellor of the Exchequer in January 2018.
The first report is published today. It sets out an explanation of the issues and complexities of IHT, gives an overview of concerns raised by the public and professional advisors during the review and then makes recommendations.
This first report examines the administrative issues that people complain about and which were raised in the responses. The second report covering other wider areas of concern to people will follow in Spring 2019.
The first report highlights the benefits of:
reducing or removing the requirement to submit forms for smaller or simpler estates, especially where there is no tax to pay
simplifying the administration and guidance
the advantages of banks and other financial institutions having standardised requirements
automating the whole system by bringing it on-line
Angela Knight CBE, OTS Chairman, said:
Inheritance tax is both unpopular and complicated. The basic design of the tax itself is for government, but at the OTS we can address that most frequent of all comments “at least make it easier for the families to fill in the forms”. The OTS has worked on ways to address these practical complexities, which have come through loud and clear.
The recommendations in this report will make it easier for the majority, and would mean that in future, many may not have to do the forms at all. Improving the administration of this tax in these ways is important as having to deal with the current process can seem overwhelming to people at a time when they are both preoccupied and distressed.
Paul Morton, OTS Tax Director, said:
It has been hugely positive to have had the benefit of so many personal insights into the experience of dealing with Inheritance Tax alongside deep engagement with many professional advisers. This has been key to informing the overview of the tax that the report provides, and will underpin the OTS’s continuing work on its second report.
The key recommendation in this report on the administration of the tax, as with other work of the OTS, is that technology should be deployed to provide a digital solution to transform the experience of those dealing with the tax on a day to day basis.
It is always a priority for the OTS to focus on improving the experience of individuals and others who need to engage with the tax system.
During this review, the OTS consulted with a wide range of individuals and businesses effected by Inheritance Tax issues. They received a record response to a call for evidence from individuals, advisers and the general public. There were nearly 3,000 responses to an online survey, a further 500 emails from individuals and over 100 written responses from experts.
Some of the main issues highlighted to the OTS review were that:
completing forms is hard, and it can be difficult to work out which form to use
the amount of information required can be disproportionate, especially in cases where no tax is due
the guidance provided can be difficult to navigate
people would like HMRC to provide receipts for tax payments
Notes for editors
The OTS is the independent adviser to government on simplifying the UK tax system, to make it easier for the taxpayer. It does not implement changes – these are a matter for government and for parliament.
The OTS works to improve the experience of all who interact with the tax system. It aims to reduce the administrative burden - which is what people encounter in practice - as well as looking to simplify the rules. Simplification of the technical and administrative aspects of tax are important, both to taxpayers and to HMRC.
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