In this article, Simon Lambert highlights the inheritance tax (IHT) conundrum nicely. Although at present the vast majority of estates will not be subject to IHT, it's an emotive topic that lots of people feel strongly about and because of this it seems like IHT is never far away from the headlines.
Whether it be the introduction of a new relief or potential abolition of existing ones, IHT and changes to it, are often used by politicians to gain favour with the electorate but this usually only results in further complicating the situation. The transferable nil rate band, residence nil rate band and the complexities of APR and BPR are cases in point.
The news that the Chancellor wants to simplify IHT is therefore welcome from the point of view that many clients struggle to understand the myriad of rules that exist at the moment even though in practice, it is unlikely to have much of an impact on many people's tax liability unless the tax free threshold is lowered. From a private client practitioner's perspective, particularly those with wealthy clients, a simplified system may not be quite as welcome as some enjoy the tax planning opportunities that current legislation provides, as well of course, as an opportunity to demonstrate their expert knowledge of complex reliefs and calculations!
Simon's suggestion of a 20% instead of 40% charge is an interesting one and we will wait and see if this change is proposed by the Office of Tax Simplification. Any proper simplification would have to see a complete overhaul of the current legislation and I am unsure whether or not a true commitment to proper simplification exists. Talk of measures that would go towards simplification have been bandied about for years but have either not been implemented, or, as stated above, have made matters more complicated!
Until the simplifications (whatever they may be) arrive however, practitioners and clients will still be required to work with the current rules, knowing how IHT is calculated and what reliefs are available. To this end, CLT has a range of courses to help you including:
- Tax Doesn't Have to be Taxing: Foundation http://www.clt.co.uk/course/tax-doesnt-have-to-be-taxing-part-1-foundation/ and Intermediate/Advanced http://www.clt.co.uk/course/tax-doesnt-have-to-be-taxing-part-2-intermediateadvanced/
- A Tricky Business: BPR and APR Explained http://www.clt.co.uk/course/a-tricky-business-bpr-and-apr-explained/
- Will Drafting Masterclass http://www.clt.co.uk/course/will-drafting-masterclass/
Hammond had a point in his letter to the Office of Tax Simplification asking it to put inheritance tax under review – it has a stupidly complicated set of rules and reliefs. So, if the Chancellor really wants to simplify IHT, here is an idea: get rid of all the fiddly reliefs, keep a tax-free threshold and cut inheritance tax to a flat 20 per cent above it. I believe this has two major merits. Firstly, it creates far less incentive for those in the multi-million pound and above bracket to indulge in measures to avoid IHT, as a 20 per cent tax cut from an estate is far more palatable than a 40 per cent one. Secondly, it could solve the curious problem of inheritance tax – it is widely disliked even though not many people pay it.