Have you ever struggled to understand inheritance tax? The Office of Tax Simplification (OTS) has recognised the complexity of this area of tax and asked the public for views on the practical problems they face.

In response to the call, the Association of Accounting Technicians (AAT) has identified some interesting points:

  • Inheritance tax receipts raised a record high of £5.3 billion in the year to February 2018. Despite this, inheritance tax is paid for in only 4 per cent of estates.
  • A grant of probate, where an executor administers the deceased's estate, can only be obtained once inheritance tax has been paid. This means that executors are often restricted from using estate assets to pay the inheritance tax bill, which in turn can cause cash flow problems.
  • The residence nil rate band allowance (RNRB) has been widely criticised for being far too complicated. AAT recommends that the new allowance is merged with the existing nil rate band allowance (the tax-free allowance), effectively increasing the nil rate band for all estates.
  • The schemes for business property relief and agricultural property relief need to be revised so that they can no longer be exploited for tax reasons by those who do not genuinely own a business, or who are not farmers. These schemes cost the taxpayer over £1 billion annually.
  • The exemption that allows shares in certain AIM-listed companies to be exempt from inheritance tax should be reconsidered as it provides unjustifiable tax avoidance and the unintentional promotion of AIM-listed companies.
  • Over half of those who die in the UK fail to make a will, and of those who do, only 6.2 per cent make a gift to charity. AAT believes that the charitable exemption is an unnecessary complexity and should be scrapped.

It remains to be seen what changes the Government will make to the current system. Watch this space…

  • Megan Seabourne is a partner in the private client team at award-winning law firm VWV, which has offices in Clarendon Road, Watford.