In February 2018, the Chancellor and the Financial Secretary to the Treasury requested the Office of Tax Simplification (OTS) carry out a review of a wide range of aspects of IHT: how they function today, the economic impact and identify simplification opportunities. The review is in keeping with the remit of the OTS to provide advice on simplification of the tax system.
The overall aim will be to identify opportunities and to make recommendations with regard to simplifying IHT from both a Technical and Administrative standpoint.
We expect the report, due to be published in the Autumn of 2018, will provide an initial evaluation of the IHT regime, analyse and evidence opportunities for simplification and include specific recommendations. This will be based upon evidence and consultation with a variety of stakeholders.
The review will consider how key aspects of the current IHT system work and whether they might be simplified. This will include a combination of administrative and technical questions which would include:
- The process around submitting IHT returns and paying the tax due
- Gift rules including the annual allowance for gifts, small gifts and gifts out of income
- Other administrative and practical issues around routine estate planning and disclosure, including relevant aspects of probate work
- Complexity arising from IHT reliefs and how they interact with the tax framework
- The impact of any distortion this may cause to taxpayer's decisions, investments, asset prices, Trusts or the interaction with other taxes
- The perception of the complexity of the IHT rules
- The OTS will be guided to research widely with stakeholders, engage with HMRC and consider devolved tax powers, taking account of relevant implications of recommendations.
Recent examples of the complexity of inheritance tax planning would include the changes to pensions which resulted in certain Inheritance Tax benefits being increased and the introduction of the residence nil rate band (RNRB). This is very complicated and causes a lot of confusion and indeed, recent research indicated that over 70% of the people asked have no idea how the RNRB works.
It is difficult to speculate on what changes may well be made as we are only a few months into the tax review, however some areas muted by other professionals include changes to the seven year gifting rules, the annual £3,000 gift rule, the nil rate band and home rate band, pensions, capital gains tax rules, trust rules and the possibility of tax switching to the beneficiary and not the estate.
We will keep you informed of the results of the Autumn Review but in the meantime, it’s important to think carefully before making a change to your financial planning in contemplation of a tax change because expected changes don’t always happen! Should you require any advice your Investment Manager will be able to put you in contact with the appropriate adviser.
This publication is provided solely to enable clients to make their own investment decisions. It may therefore not be suitable for all recipients and does not constitute a personal recommendation to invest. If you have any doubts as to the suitability of this service, you should seek advice from your investment executive. The past is not necessarily a guide to future performance. The value of shares and the income from them can fall as well as rise and investors may get back less than they originally invested. Any tax reliefs referred to are those applying at the time of writing. All estimates and prospective figures quoted in this publication are forecasts and are not guaranteed. Rowan Dartington, its associate companies and/or their clients, directors and employees may own or have a position in the securities mentioned herein and may add to or dispose of any such securities.
Rowan Dartington is part of the St. James’s Place Wealth Management Group. Rowan Dartington & Co. Ltd is a member of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. The FCA does not regulate trust or taxation advice. Registered in England & Wales No. 2752304 at Colston Tower, Colston Street, Bristol BS1 4RD.