The Chancellor of the Exchequer, Philip Hammond has written to the Office of Tax Simplification asking them to review the current Inheritance Tax (IHT) rules with the view of simplifying the “particularly complex” system, making it “fit for purpose”.
The assessment of the deceased estate, the calculation of the tax due, how returns are submitted and when, and the interpretation of the various legacy clauses that still exist, make the process of administering an estate incredibly difficult at a time of, often, extreme emotion.
Even before the actual death, the task of financially planning to mitigate IHT liability remains complex. The recently introduced resident nil rate band aims to allow home owning couples (married or in a civil partnership) to pass on the family home to direct descendants, meaning that a total estate of £1m can be passed on ‘tax free’ by 2020/21. However, based on research by Old Mutual Wealth, 70% of those asked had no idea how this policy works in practice.
Whilst any proposals are not expected to be submitted in the short term, it will be interesting to see how Mr Hammond responds to any recommendations that would see a potential reduction of inflows into the Treasury coffers. The hope, from advisers and clients alike, will be a true simplification – a rare occurrence in the world of financial planning.