Inheritance Tax Review focuses on practical application of APR and BPR

27 Nov 2018

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The Office of Tax Simplification (OTS) has published its first report as part of its Inheritance Tax Review, with a second report to follow in spring 2019.
In January 2018 the Chancellor asked the OTS to undertake a review of inheritance tax against a background where less than 5% of deaths result in inheritance tax being due, but where executors are completing returns for almost half of all deaths. It is agreed that some simplification is required to what is reported as an “almost uniquely unpopular tax” although any changes will need to be made by government and will be considered in the second OTS report.

The first report goes into detail about how the inheritance tax system works, who pays it and views on the tax and its shortcomings.

In this first report, the OTS has pulled together a list of general recommendations:

  • There should be a fully integrated digital system for inheritance tax.
  • Changes should be made to reduce and simplify the administration of estates.
  • HM Revenue & Customs’ (HMRC’s) inheritance tax guidance should be reviewed and improved with helpful examples.
  • There should be enhanced communication with executors.
  • Options to streamline the payment and probate process should be considered.
  • The situation where trustees have to submit forms where no inheritance tax is due and no reliefs or exemptions are claimed should be reviewed.
  • Until a digital system is implemented there should be changes to lifetime charges and trusts, with improved guidance on how forms for these are completed and tax is calculated.
  • There should be an improved speed of response from HMRC.

David Chismon, a partner at Saffery Champness and a member of the firm’s Landed Estates Group, comments:

“Agricultural Property Relief (APR) and Business Property Relief (BPR) are of considerable interest to many of our clients. The report says that change should focus on the practical application of these reliefs and it is hoped that simplification will iron out confusion, for example in relation to Furnished Holiday Lets, certain joint ventures and limited liability partnerships. Hopefully, any change will clarify that these businesses do qualify for relief rather than categorically excluding them. 

“The report also notes that the need to claim APR before BPR does lead to an increased burden on administration, so again we could see a positive change to this cumbersome aspect of the reliefs. 

“Thankfully, the report does not appear to show an appetite for drastic change at this stage. It says that the OTS has heard that these reliefs work in a broadly straightforward way, albeit there are some areas as outlined where changes may be appropriate. We must wait for the second OTS report due in spring 2019 to see which aspects are proposed to be taken forward and any further detail.”