‘Inheritance tax misunderstood and unnecessarily complicated’ - AAT

Written by Oliver Wade

Association of Account Technicians (AAT) has recently responded to the Office for Tax Simplifications (OTS) inheritance tax (IHT) review, stating that the tax is “widely misunderstood, unnecessarily complicated and that several exemptions should be scrapped”.

IHT receipts are rapidly rising, raising £5.3bn over the past year to the end of February 2018, a record high. However, only 4 per cent of estates pay IHT, so AAT suggested that this fact needs to be more effectively communicated to the public, as many wrongly believe that they will be affected.

There are certain exemptions that the wider public are unaware of, such as marriage gifts, gifts to political parties and small gifts exemptions. AAT stated that these exemptions are only usually being taken advantage of when professional advice is given, so they should therefore be scrapped.

AAT has said that it recognises that some are likely to complain about the removal of these reliefs, but that scrapping these exemptions would not “cause considerable consumer detriment”, save the taxpayer money and would add a simplified IHT landscape that can be more “easily understood by all”.

AAT’s consultation response also suggested the removal of the charitable giving exemption introduced in 2012.

AAT head of public affairs and public policy Phil Hall said: “As well as the statistical data about house prices and savings, new provisions allowing individuals and married couples to pass on their main home with a smaller tax liability are far more than any inflationary linked increase would achieve. For the majority, the £325,000 threshold (£650,000 for a married couple) is more than sufficient, especially when property allowances are factored in. Unlike many commentators, AAT therefore recommends that the NRB be maintained rather than increased.”

“The simplest means of removing complexity around IHT would be to scrap it and rely solely on Capital Gains Tax (CGT) as they’ve done in Australia since the 1970s. This would be far simpler and, some might argue, a more meritocratic approach to taxation.

“However, AAT accepts that the political appetite for such radical reform in the UK is unlikely to exist and instead suggests aligning definitions, scrapping exemptions and undertaking simple, sustained communications activity that helps to ensure the public knows most people are unlikely to be affected by this tax.”

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