Rishi Sunak has cut red tape on inheritance tax

Cottons Tax Advisory Service

The Treasury said it plans to cut inheritance tax (IHT) red tape in a move designed to reduce the paperwork families need to fill out when someone dies.

The move follows recommendations by the Office of Tax Simplification (OTS) and comes as part of ‘tax day’ announcements.

The Treasury’s Tax polices and consultations document said IHT reporting regulations will be simplified later this year so that from 1 January 2022 more than 90 per cent of non-taxpaying estates will not have to complete IHT forms for deaths when probate or confirmation is required.

In addition, the current temporary provision for those dealing with a trust or estate to provide an IHT return without requiring physical signatures from all those involved will be made permanent.

Reporting regulations will also be updated to clarify the requirement for estates to submit an IHT account where the deceased was never domiciled in the UK but owned indirect interests in UK residential property.

John O’Connell, chief executive of the TaxPayers’ Alliance, said: “Limiting paperwork is long overdue, but inheritance tax remains deeply unfair and unpopular. There is nothing gloomier than taxing death. The best way to simplify the system would be to abolish this tax and show a more compassionate attitude towards the bereaved.”

Sean McCann, chartered financial planner at NFU Mutual, said: “Currently, thousands of bereaved families are forced to complete complex inheritance tax forms, even when it is clear there is no inheritance tax to pay, often feeling forced to pay a solicitor for fear of making a mistake.

“Reducing the reporting requirements is a positive step forward, but the government should go further and simplify what is a fiendishly complex tax, feared by many but paid by few.

“Introducing simpler rules on lifetime gifts and removing some of the traps that families can fall into, such as making life insurance pay-outs free of inheritance tax, would go a long way to removing this fear.”