Tax Day: Treasury moves to cut IHT red tape

Writes Jenna Brown

Bureaucracy linked to inheritance tax (IHT) for smaller estates will be scaled back to make the process simpler, the Treasury has announced.

The move announced as part of the government department’s ‘tax day’, will see lower value estates’ form-filling burden reduced. It would apply to estates that fall below the main IHT threshold of up to £1m for the surviving partner.

The change is in response to the Office of Tax Simplification’s 2019 report on the issue.

Many families who do not need to pay IHT are still obliged to fill out HM Revenue & Customs (HMRC) forms to obtain a grant of probate after a loved one dies. However, from 1 January 2022, this rule will be lifted for more than 90% of non-taxpaying estates.

The government said it would still be required if the estate is of high value, the person lived outside the UK or more complex reliefs are being claimed.

Documents released yesterday (23 March) added the current temporary provision for 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.

Chancellor Rishi Sunak froze many personal taxation thresholds in the Spring Budget on 3 March. This included IHT – meaning more people would end up paying the tax in the coming years.

Zurich head of market engagement Peter Hamilton said reform of IHT was “overdue”.

He explained: “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.”

More substantive changed to IHT did not materialise. 

Quilter tax and financial planning expert Rachael Griffin said: “After all the speculation that inevitably comes when any tax policy announcement is scheduled in advance, today’s consultations are a bit of a damp squib, much to the relief of the nation’s personal finances, and savers and investors can now breathe a sigh of relief that the inaugural ‘tax day’ has passed with no major proposals to change rates or reliefs in future. Instead, the Treasury has focused on ‘behind the scenes’ changes to improve the administration of the tax system and to build a modern tax system.

“There were no proposed changes to capital gains tax nor IHT, but the government has opted to cut IHT form-filling for estates that fall below the main threshold for the tax, as recommended by the OTS in 2019. Over 90% of non-taxpaying estates each year will no longer have to complete IHT forms for deaths when probate or confirmation is required.

“This is a step forward towards greater simplicity, but leaves the system largely unchanged, and we are still a long-way from seeing any fundamental changes to the IHT system as recommended by the OTS and the APPG on Inheritance & Intergenerational Fairness.”