Today’s review of inheritance tax by the Office of Tax Simplification contains some sensible suggestions for reforming inheritance tax (IHT). As always, continued consultation is needed as the proposals are developed and refined, says the Chartered Institute of Taxation (CIOT).
John Bunker, Chair of the Chartered Institute of Taxation’s Succession Taxes Sub-committee, commented:
“The key to simplifying inheritance tax is to understand that you cannot add simplicity, rather you must remove complexity.
“Reducing the seven year period for lifetime gifts to five years, while scrapping taper relief, would be a significant simplification, reducing the bureaucracy involved in complying with IHT rules for many affected.
“Perhaps the most eye-catching proposal in the report is the proposed change to capital gains tax rather than IHT – that is, that the government should consider removing the ‘capital gains uplift’ when an asset such as a farm or other business is passed on at death or is otherwise exempt from tax (for example between spouses or in the case of transfers by foreign domiciliaries), so the recipient is treated as having acquired it at the historic base cost it was acquired at by the person who has died. This is a brave proposal as there would be significant losers from it. But it can be seen as removing an anomaly and levelling the playing field between lifetime giving and death transfers and deserves careful consideration from government.
“As with any proposals to change our complex tax system, it is important to consult fully and be prepared to keep working on the proposals at every stage in order to ensure that the consequences for those affected are understood, so that unfair outcomes do not slip through. Particular attention will be needed to the proposals to change the rules on where liability for tax falls as between recipients of lifetime gifts and those who inherit on death. This is very much a matter of fairness between different people rather than raising more or less money for the exchequer. People’s wills have been drawn up on one basis but risk being taxed under another and some of the proposals on allocation of liability have much wider implications.
“We hope that Treasury ministers will give these proposals serious attention over the next few months and open the discussion to wider debate.”
Notes for editors
1. The OTS Inheritance Tax review: Simplifying the design of the tax can be viewed here.
2. The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 18,400 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk (Out of hours contact: George Crozier 07740 477374)