2 February 2018
On 29 January 2018 Chancellor Philip Hammond wrote to the Office of Tax Simplification (OTS) instructing them to carry out a review into the regime surrounding UK Inheritance Tax.
There have been calls for and rumours of a root and branch reform of the system for most of its more than 30 year existence, and there will be few professionals working in Inheritance Tax who wouldn’t agree that the legislation has become complex, fragmented and poorly targeted.
The scope of the review is to be agreed in the next week or two, and there are question marks as to how it might interact with the (yet further) review of the taxation of trusts which Mr Hammond referred to in his Autumn Budget last year; the two regimes being inextricably intertwined.
Some of the more recent changes to Inheritance Tax, particularly the introduction of the Residence Nil Rate Band, have added tens of pages to the legislation and layers of complexity and uncertainty for those looking to plan the distribution of their estate during lifetime or on death. John Bunker of the Chartered Institute of Tax had an excellent piece of advice for the OTS in relation to the planned review, noting:
“The review must begin with an understanding that you cannot add simplicity, rather you must remove complexity”.
The request for a review appears to reflect the Chancellor’s preferred approach of research and consideration informing policy decisions rather than the making of knee jerk reactions or ‘pulling rabbits from hats’ during budget speeches.
Do I need to do anything?
Once the scoping of the review becomes clear we should have a better feel for whether this is largely an administrative review or whether it will extend to considering the valuable reliefs from tax, including Agricultural and Business Property Reliefs, charitable exemptions, and the treatment of lifetime gifts.
It seems likely that there won’t be any decisions made before this year’s Autumn Budget at the earliest, but history suggests that substantial changes to the basis of the tax are likely to be forward-looking and that existing structures may be offered some form of protection, often referred to as grandfathering.
As such if you’re considering a review of your affairs or the redistribution of assets around your family then 2018 might be a sensible time to take some advice and turn thoughts into actions.