Inheritance Tax  

Govt reduces IHT reporting requirements

Govt reduces IHT reporting requirements

The government is reducing reporting requirements for inheritance tax declarations, following a review by the Office of Tax Simplification.

As part of today's (March 23) 'tax day', the government pledged to simplify reporting regulations, including scrapping mandatory reports where no tax is due.

It said that from January 2022 more than 90 per cent of non-taxpaying estates will no longer have to complete inheritance tax forms for deaths when probate or confirmation is required.

In addition, the current rule allowing those dealing with a trust or estate to provide an inheritance tax return without requiring physical signatures from all those involved will be made permanent.

Reporting regulations will also be updated for estates where the deceased was never domiciled in the UK but owned indirect interests in UK residential property.

In its first report in November 2018 the OTS suggested HM Revenue & Customs revisit the requirement whereby trustees need to submit IHT forms even when no payment is due, and no reliefs or exemptions are claimed.

It also recommended the government should move to a fully digital system for inheritance tax, "ideally including the ability to complete and submit a probate application".

The OTS said it realised a complete overhaul would be expensive and time consuming but said: "Pending implementation of a digital system, HMRC should make changes to the current forms to reduce and simplify the administration of estates, including introducing a very short form for the simplest estates and updating the conditions that must be met to be able to complete a short inheritance tax form."

Peter Hamilton, Zurich’s head of market engagement, said: "Reform of the IHT system is overdue - increasing numbers are falling into the threshold and the current process  brings complexity and stress for more and more families at a hugely difficult time for them.

"Anything that can simplify the system to help customers after losing a loved one, particularly those with smaller estates,  would be welcomed.

"As insurers, this is something we’ve collectively taken steps to do, including instant payments on life insurance claims to help customers with funeral arrangements and clearing any outstanding liabilities, and reducing some of the difficulties associated with the need for attested death certificates."

In its final review, published in July 2019, the OTS recommended that the seven-year period in which gifts are taxed before death should be cut to five years in an effort to clear confusion and reduce the administrative burden. 

It also said the taper relief should be axed, which sees gifts made three to seven years before death taxed on a sliding scale as long if they exceed the nil rate band of £325,000.

Additionally, gift exemptions should be consolidated into one gift allowance.

But none of these recommendations were referenced in the government's paper on IHT reform.

The review was commissioned in 2018 by then Chancellor Phillip Hammond who was concerned the system was "particularly complex".