Tax

Inheritance tax review

Inheritance tax (IHT) advice is a key part of legal practice for some solicitors because of its relevance to wills, probate and trust advice. It’s gone through several changes since it was introduced in its modern form in 1986 which have made it increasingly complex.

OTS call for evidence

In April 2018 the Office of Tax Simplification (OTS) issued a call for evidence as part of its review of IHT.

In our response to this review in June 2018, we made recommendations to simplify the current system. These included: 

  • implementing a streamlined process for completing IHT forms using the online automation and form building technology on the HM Revenue and Customs (HMRC) website
  • introducing a graduated tax rate or a return to the inflationary increase in the amount of the nil rate band (NRB)
  • increasing the annual exemption amount for lifetime giving to, say, £10,000 to account for inflation (the exemption amount has remained at £3,000 since 1981 and has never been index linked) – this may simplify the rules by providing an opportunity to remove small or insignificant amounts from the scope of monitoring
  • repealing the residence nil rate band (RNRB) and replacing it with an increase in the standard NRB, particularly if this can be kept simple and tax neutral
  • removing current inconsistencies in IHT – for example, business property relief not being available on furnished holiday lets
  • extending the bereaved minor trust regime to age 25, extending it to any child inheriting under a will and repealing 18 to 25 trusts
  • retaining a spouse exemption and to consider extending this to unmarried cohabitees

Outcome of the call for evidence

The OTS produced two reports:

The key recommendation of the first report is that the government should implement a fully integrated digital system for IHT, ideally including the ability to complete and submit a probate application online.

The second report recommends changes that concentrate on three areas of IHT:

  • lifetime gifts
  • businesses and farms
  • interaction with capital gains tax

The government is considering these reports but has not yet announced the next steps.

What this means for solicitors

The OTS’s recommendations, if implemented, would mean significant changes to IHT and its administration. 

For example, there could be changes to:

  • the current IHT forms to simplify the administration of estates
  • the design of the tax, which could affect the advice solicitors give

The OTS acknowledges that some of the recommendations could prompt some people to change their wills.

Our view

If there's to be a complete overhaul of the IHT regime, we’d welcome a thorough review of other options in 2020 through a broad and detailed consultation with relevant stakeholders and interested parties.

What happens next

IHT reforms have been widely anticipated this year but there were no announcements in the March 2020 budget. We’ll update this page when we know more.

Timeline

January 2020 the All Party Parliamentary Group (APPG) on Inheritance and Intergenerational Fairness, to which we gave evidence, produced its own report on IHT reform

July 2019  the OTS published its second report Simplifying the design of tax

March and April 2019 we gave evidence to sessions of the APPG

November 2018 the OTS published its first report Review of the tax and dealing with administration

June 2018 we published our response to the OTS call for evidence (PDF 311KB) and hosted a roundtable discussion with the OTS

April 2018 – the OTS issued a call for evidence

January 2018 the chancellor asked the OTS to carry out a review of IHT