The Office of Tax Simplification (OTS) has been reviewing Inheritance Tax (IHT) and surveyed the public and professionals last year. Its findings revealed that some of the UK’s largest estates are paying a much lower percentage of IHT than medium sized estates, due to inconsistencies in the way different assets are taxed.
In figures released by HMRC, they have revealed estates worth over £10million pay an average of 10% in IHT, whilst estates a fraction of the size, worth between £2m and £3m, pay an average of 20%.
This is because of different asset compositions. For example, high value estates are more likely to contain assets that can attract 100% business property relief (whereby businesses or shares can be passed on free from inheritance tax on the death of the owner), whereas some smaller estates are more likely to contain a higher proportion of assets such as property and cash that cannot benefit from relief.
The report also highlighted that less than 25,000 estates in a year are liable for IHT, yet 275,000 estates had to submit returns. It acknowledged that administrative complexity and lack of response from HMRC were serious issues and recommended a digital system of reporting in the future. The surveys conducted revealed that IHT is seen as the most unfair tax and that the new residence nil rate band is seen as unduly complex and unfair.
The findings do not come as a surprise, but it will be interesting to see whether the Government responds in a positive way. The OTS is due to continue its review and publish a 2nd report on more detailed issues in due course.
The dedicated team here at Smith Cooper are expertly equipped to help mitigate IHT and devise a planning strategy to reduce the tax payable on estates and ensure you are paying the correct amount.
Our landed estates Partner, Catherine Desmond, has been dealing with diverse estates and their unique requirements for over 20 years, ensuring the needs of our clients are individually cared for. Should you have any questions, please get in touch.
