The Office of Tax Simplification Reveals Loopholes in the Inheritance Tax System that Gives the Super-Wealthy an Unfair Advantage
After its first thorough-going review of the UK’s inheritance tax system, the office of Tax Simplification (OTS) has published findings that seem all too “obvious” to thought leaders in the industry.
Expert believe that the details of the OTS findings could have been be easily extrapolated from history. The reports bear a strong presence of historical contexts.
However, one of the upsides of the report is that the findings shed light on some gray areas of IHT. The report provides insights into the complexities of the current challenges plaguing the UK’s inheritance tax system, including a number of poorly defined terminologies and concepts, inefficiencies in administrative workflow, and mounting backlogs of IHT payments.
According to the findings, much of the heavy-lifting has been left to only a handful of people. While over 70% of people dedicate no more than 10 hours administering estates, 12% pour in over 100 hours.
Another upside of the review is that the OTS has disclosed a number of suggestions concerning ways around these challenges. One of those suggestions are about reducing the burden for trustees of low value and simple estates. They’re imploring HMRC and HM Courts and Tribunal Service to cross out Inheritance Tax forms from the list of requirements for probate registration for trustees of simple estates.
The OTS also suggested that simple forms should suffice in probate registration for simple estate trustees. The report denounced the protocols that call for the submission of IHT forms when IHT isn’t quite relevant, as well as these extraneous requirements are demanded without exemptions.
As a result of these extraneous IHT requirements, only 10% of those who fill out Inheritance Tax forms actually make payments in that regard. With a simple online registration process for simple estate trustee, over 250,000 people can benefit from minimized rigors each year. The simplified processes will also be highly expedient for people who still need to go through the comprehensive registration process. This will also help minimize the rate at which backlogs of IHT payments accumulate on a yearly basis.
The challenges call for the government to take a holistic, deep-rooted approach to reforming the regulatory environment. Until now, changes to the system have only come in piecemeal, targeted to only specific areas of the system, instead of a multifaceted reformations that carry along every part of the system.
The HM Revenue and Customs also need to implement holistic changes, especially in their IHT calculation system. According to the OTS, the HM revenue and Customs need to implement such changes along the lines of the ‘learn how to drive’ guiding principles.
However, the first step the government must take in order to achieve this reformation is to adopt an unequivocal definition of certain terms and concepts. Chief among these include the purpose of inheritance tax, the roles of the various administrative staff.
Currently, the UK’s IHT system appears to tax people based on wealth in a pattern in which the super-rich pay much less than the middle-class and lower-upper class. Statistics show that the super-rich worth £10m and above pay only 10% in taxes, whereas those in the middle and lower upper class pay around 20%. As counterintuitive as it may sound, the UK’s inheritance tax system actually rewards the super-rich. It fails to impel the rich to contribute their fair share as it does to those in the middle class and lower middle class.
The second part of the reviews is still forthcoming. But from what has been gathered in this first review, experts believe that its high time for bold reformations that free the IHT system from the shackles of the past.
