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UK Launches Inheritance Tax Review

Thursday, February 1, 2018

The UK's Office of Tax Simplification (OTS) has been tasked with investigating options for reform of the UK's inheritance tax.

Philip Hammond, the UK Chancellor of the Exchequer, addressed the OTS in a letter sent January 19, 2018, asking to hear of its proposals for simplification, "to ensure that the system is fit for purpose and makes the experience of those who interact with it as smooth as possible."

He instructed the OTS that the review should focus on technical and administrative issues, such as the process of submitting returns and paying tax due, as well as practically issues around routine estate planning and disclosure.

He suggested it could also look at how current gift rules interact with the wider IHT system and whether the current framework causes any distortions to taxpayers' decisions surrounding transfers, investments, and "other relevant transactions."

Commenting on the start of the review, professional services firm RSM noted that in November 2017 HMRC had published a report into behavioral evidence around inheritance tax and reliefs.

George Bull, a senior tax partner at RSM, said: "The conclusions of this report may signal an expectation in Government that the entitlement to business property relief in particular may be curtailed in the course of the current review." He said: "It is also important to review IHT in the context of the competing and wide-ranging regimes elsewhere in the world. The US is one of the more extreme examples where potentially up to USD22m can be passed to the next generation tax-free."

Geoffrey Todd, a partner in the private client and tax team at law firm Boodle Hatfield commented: "As the Chancellor noted, IHT is a particularly complex tax and the current system is rife with inconsistencies. Any genuine simplification of the way it operates and is administered and which helps ease frustrations and delays in settling IHT-related matters with HMRC has to be welcomed provided that fairness is also maintained. Particular areas which would benefit from simplification include the taxation of lifetime gifts, the recently introduced residence nil rate band, and the IHT taxation regime for trusts."

"We will know more about the precise scope of the investigations when the terms of reference of the review are agreed in the coming weeks. It will be interesting to see how this ties in with the Government's planned consultation on how to make the taxation of trusts 'simpler, fairer, and more transparent,' announced at the Autumn Budget. The consultation and OTS review taken together could lead to real change, although this is at least a year away."