The OTS's first report on the review of Inheritance Tax

The OTS's first report focuses on addressing the "practical complexities" of the regime.

The Office of Tax Simplification has released its first report on the review of Inheritance Tax ("IHT") following the public call for evidence early last year.  It received a record response from over 3,500 professionals, including Wrigleys, and members of the public.

Subtitled "overview of the tax and dealing with administration", this first report is confined to those issues.  A second report is due in the Spring, and it is anticipated that this will have a more technical basis addressing what the OTS refers to as "areas of complexity" and the "big picture".

Key recommendations from this initial report are based on the OTS's findings that the requirement to complete IHT returns catches too many people (even when there is no tax to pay), the process is unduly burdensome and HMRC's guidance is unclear.

The recommendations include:

• To implement a fully integrated digital system for IHT pending which HMRC should amend the current forms to reduce and simplify the administration of estates.
• HMRC should review its IHT guidance to ensure it is clear, consistent and user friendly.
• To introduce automated payment receipts on probate and trust matters, and automated receipts for IHT100 forms on trust matters (by which trustees report to HMRC on IHT "events").
• HMRC should review the requirement for trustees in some instances to submit IHT returns even when no IHT is due and no reliefs or exemptions are claimed.

The second report promises to focus on the "practical application and complexity of agricultural property relief and business property relief, rather than major changes to the reliefs themselves".  Is this encouraging, from the point of view of those with a desire to see the current, and relatively benign, capital taxation regime remain so? 

There is no doubt that a wholescale review of the IHT regime would be a serious undertaking, but on the whole the first report does not seem to suggest an appetite for such drastic change. 

It seems that the OTS's intention in the next report is to address areas of confusion and inconsistency, with a view to simplifying the most complex areas of IHT.  So, whilst initially this may not appear to reach into the substance of the relevant law, such a review might necessarily entail some tweaks to the legislation governing these valuable reliefs.  The OTS's recommendations are only that, and will not bind the government.  If any are taken on board, it will be important for the government to make changes bearing in mind the still valid policy reasons behind the introduction of these reliefs in the first place.  We very much hope that this will be the case.

We therefore await the next report in the Spring so we can understand more about the potential for legislative change.  Until that is published, we must confess that we remain slightly nervous.  

The timing of the second report is likely to be too late for any legislative changes to be implemented in the Chancellor's Spring Statement although there might be scope for inclusion in the Autumn Budget.  Brexit, and/or any change of government, may also trigger a new Budget. 

We therefore maintain that there is still a strong case to be made for acting sooner rather than later when it comes to IHT planning involving business and agricultural assets in particular.