Complex rules around inheritance tax (IHT) must be “simplified” in order to close the gap, according to law firm Collyer Bristow, after new statistics published by HMRC show that the IHT gap has grown to £600 million in 2016/17, rising 50 percent from £400 million five years ago in 2012/13.
Total IHT take jumped 13 percent to a record high of £5.3 billion last year, up from £4.7 billion in 2016/17.
James Badcock, partner at the law firm, said: “The fundamental problem is that IHT is now so complicated that innocent taxpayers are making honest mistakes and underpaying tax.
“The rules are sometimes so irrational that there is an element of ‘accidental evasion’ by those who don’t have professional advice. The new main residence nil rate band was intended to take normal people out of inheritance tax but it is so complex that people are missing out in its benefits.”
Mr Badcock continued, “If HMRC wants to close the tax gap it is crucial that IHT rules are simplified so that fewer errors are made and IHT is collected correctly.
“However more fundamental change would be welcome. In its current form, IHT’s complexity encourages behaviours which are detrimental to sensible financial planning and the distribution of wealth through generations. At the moment we have asset rich baby boomers, asset poor millennials and a ticking tax bomb.”
The Chancellor has asked the Office of Tax Simplification (OTS) to carry out a consultation on in inheritance tax. The scope of this goes beyond simplification of the legislation and the administrative processes to open up issues about policy and fundamental aspects of how inheritance tax works.
The OTS will publish its report in Autumn this year.
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