The OTS showed a system that “has its roots in the past”, according to Rachael Griffin, tax and financial planning expert at Quilter.
From lack of clarity and administrative burden to unbalanced IHT amounts to pay, “this first report identified numerous areas of confusion and complexity around IHT,” said Griffin.
“70% people spend 10 hours or more on administering the estate and over 12% spend more than 100 hours. Encouragingly, the OTS have made what may seem like obvious recommendations.
“For instance, encouraging HMRC and HM Courts and Tribunals Service to allow low value and other simple estates, the possibility of obtaining probate without submitting inheritance tax forms, or on submission of a very simple form and suggesting HMRC reviews the bizarre requirement where trustees need to submit IHT forms when no IHT is due, and no reliefs or exemptions are claimed.”
The OTS also encourages HM Revenue and Customs to follow the ‘learn how to drive’ guidance as a blueprint to base the new IHT calculation system on.
“It is ridiculous that ten times the number of people fill out the form associated with inheritance tax than actually pay it,” said Laura Suter, finance analyst at AJ Bell.
“A simple online system would mean that up to 250,000 people each year could avoid the stressful process and instead find out instantly online whether they need to complete the longer form filling.”
However, before the IHT system is reformed there are a few clarifications the government needs to make. Spelling out “What is the point of inheritance tax?”, Griffin said it could point what direction the government needs to take.
If it is used to tax people based on wealth, then the system needs reforming since the super-wealthy are pay less than they are supposed to.
Griffin said “those with £10m or more are paying around 10% tax compared to those with middle to high wealth, who pay around 20%. These figures and the graphs that accompany them will strike many as counterintuitive. It appears we’ve entered an upside-down tax regime where the wealthy aren’t paying their fair share.”
Neil Jones, market development manager at Canada Life, echoed Griffin and said the government needs to take a more holistic view of the overall regulations and consider a “deeper, root and branch, review” to look at some of the areas of inheritance tax.
“The tax system has evolved piecemeal rather than as a single thought-through design and today the report has unveiled some similarly piecemeal changes,” he added.
While the second part of the review still to be released, all experts are calling for a more proportionate reform to the IHT system.