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30 November 2018

HMRC should remove unnecessary Inheritance Tax form filling for bereaved families, says the Office of Tax Simplification.

The death of a loved one is hard enough to deal with on its own. However, if there is a complex or sizeable estate to administer, the prospect of having to sort it out can be daunting.

All estates need to be administered to some extent, and the process of applying for Grant of Probate and dealing with Inheritance Tax (IHT) will often need to be factored in.

Dealing with IHT alone can create an enormous administrative burden. The paperwork can be very time-consuming; the guidance provided can be difficult to navigate; and executors face the legal and financial responsibility for doing everything correctly.

Over a third of people who do not use an adviser spend 50 hours or more administering an estate, and only 11% of those who go without advice say that they find the process simple and user friendly.1

Part of the problem lies with the significant amount of information required by HMRC, much of it disproportionate, especially in cases where no tax is due. Most forms can only be submitted on paper, and they often cross-reference each other, meaning that information must be manually entered on more than one occasion.

In January, the Chancellor asked the Office of Tax Simplification (OTS) to carry out a review covering a wide range of both administrative and broader technical aspects of IHT. The first report, released last week, summarises the many concerns raised by the public and professional advisors, and sets out recommendations on the administrative issues which featured frequently in their responses. The second report covering other wider areas of concern will follow in Spring 2019.

“The burden of form filling is a tax in itself.” Respondent

One of the most eye-catching recommendations in this first report, is the implementation of a “fully integrated” digital system for IHT. This should “ideally” include the ability to complete and submit a probate application. Notably, the proposed digital system would calculate the IHT payable after inputting the information needed, removing the need for individuals to do complex calculations.

However, a fully digital system will be expensive and will take time to introduce, so the OTS has called on HMRC to simplify the current paper forms and introduce a very short form for the simplest estates. It also suggests improving the guidance available for completing forms and calculating tax. The proposals should, if implemented, go some way to reducing the burden at what is often a stressful time.

“The recommendations in this report will make it easier for the majority, and would mean that in future, many may not have to do the forms at all,” says Angela Knight, OTS chairman. “Improving the administration of this tax in these ways is important, as having to deal with the current process can seem overwhelming to people at a time when they are both preoccupied and distressed.”

Family matters

Despite efforts being made to simplify the estate administration process, it is likely to remain a significant hurdle for many families, whether or not IHT is due.

Most of us will spend our working lives providing for our loved ones. It seems logical that we would also want to lessen the burden on them when we pass away. Unnecessary stress, unexpected obstacles, and a gruelling estate administration experience can all interrupt the healing process. That's why many of us would prefer that our estate is administered by a specialist.

Specialist estate administration firms do all of the legal and tax work required (including applying for the Grant of Probate and dealing with IHT), but they also deal with the practical things that need to be done when someone dies, such as liaising with utility providers, resolving pension enquiries, closing bank accounts, and even rehoming pets.

This can offer peace of mind and ensure that loved ones have one less thing to worry about. A financial adviser will be able to guide you through your options and, if necessary, facilitate an introduction to an appropriate service.

 

The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.

 

1 Office of Tax Simplification, Inheritance Tax Review – first report: Overview of the tax and dealing with administration, November 2018

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