The Treasury has issued a letter to the Office of Tax Simplification (OTS) outlining that it won’t be reforming inheritance tax (IHT) along the lines of its recommendations.

The review of IHT was commissioned in January 2018 before the OTS published a second report in July 2019 on how to simplify the technical design of IHT.

This outlined 11 recommendations for consideration, including those which it suggested could simplify lifetime gift exemptions and change the scope of reliefs such as those for business property and agricultural property.

The Treasury has acknowledged that IHT is forecast to raise £6bn in the 2021/22 tax year to help fund public services, an “important contribution” to the public finances.

Despite this, the Treasury’s letter penned yesterday apologised for the delay in providing the government’s response, but confirmed it would not be making reforms.

“After careful consideration of your recommendations, the government has decided not to proceed with any changes at the moment, but will bear your very valuable work in mind if the government considers reform of IHT in the future,” the letter said.

Commenting on the decision, Hargreaves Lansdown senior personal finance analyst, Sarah Coles, said: “It’s really disappointing that the Treasury hasn’t taken this opportunity to update the gifting allowances, which are no longer fit for purpose. The £3,000 annual exemption has been frozen since 1981. If it had risen with inflation it would be over £13,000 now.

“The small gifts exemption has been frozen since 1980, so after inflation it should be over £1,000. And the wedding gift exemptions haven’t changed since 1975 – and were always a slightly peculiar oddity anyway.

“Reducing the length of time it takes for larger gifts to leave the estate from seven to five years was also eminently sensible, as the current system requires too much record keeping, and forward planning. And getting rid of the loophole that means gifts made 14 years ago could end up dragged back into the estate would have avoided some horrible surprises.”

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